Should you borrow money to bag a sharemarket bargain?

April 12, 2026 — 5:10am

There’s a reason why one of Warren Buffett’s most famous pieces of advice – to be fearful when others are greedy, and greedy when others are fearful – is enjoying a revival among investors right now.

With the sharemarket still experiencing sustained pressure, savvy investors are eyeing up an opportunity to bag themselves a bargain. But the problem for many is that this particular dip has arrived after years of sustained cost-of-living pressures that have resulted in people either failing to save, or draining what savings they have.

It’s little wonder, then, that there is so much chatter around borrowing money to invest. One of the most common ways you can do this, especially when the loan is being used to invest in the market, is through something called a margin loan.

For the unfamiliar, margin loans are similar to a car loan or a home loan in that they are a very specific loan type with strict rules around what the money can be spent on. For margin loans, that purpose is buying shares, exchange-traded funds (ETFs) or managed funds.

On the surface, the basic maths of borrowing money to invest seems pretty straightforward and attractive.

Let’s say you want to take out a loan for $50,000 and invest it into the sharemarket. With an average annual return of between 9 and 12 per cent, and an average interest rate of 5.5 per cent, you’re set to walk away with somewhere between 3.5 and 6.5 per cent profit each year for little to no effort.

From all of this, it might sound like I’m anti-margin loans, but that’s not the case.

But in reality, when you read the fine print and take a deeper dive, it’s a bit more complicated than that.

For starters, the interest rates on margin loans tend to be higher than those on standard loans, generally ranging between 7.5 and 10.5 per cent. That’s because these loan types are inherently higher-risk and because the primary collateral for the loan (those stocks and ETFs you’re investing in) are relatively volatile compared with more traditional loan securities.

Then there’s the loan-to-value ratio (LVR) and margin calls. To offset some of the risk, margin loans have strict LVR levels in place, which are set by the lender and are generally at 70 per cent.

As we all know, the sharemarket is much like a rollercoaster. And while the most astute investors will tell you the best skill you can have is being able to ride out the lows and remember that highs will come again at some point, unfortunately that doesn’t satisfy lenders.

So when the market drops and the value of your portfolio dips past a certain point, your LVR will automatically go above the agreed percentage. If that happens, you’ll be issued a margin call.

When this happens, a lender will contact you and tell you that you’ll need to come up with a solution – and fast. Generally, once a margin call is issued you have just 24 hours to ensure the LVR is lowered back down to the agreed rate.

The good news is that there are a few ways you can do this. The first option is to tip in some extra savings and reduce the loan balance. The second option is to add more shares and increase the balance of your portfolio, while the third is to sell some of your portfolio and reduce the loan balance that way.

But all three of these options have caveats. Contributing extra money is only possible if you have savings that are easily accessible and enough to cover the difference. The second relies on you having additional capital or investments you can contribute, which isn’t always something people have readily available. For the third option you sell your investments when they’re worth less than their true potential value, or worse, worth nothing.

Just because a share’s value drops at a specific moment does not mean it’s no longer worthless. The monetary figure assigned to the share may go up and down, but so long as the number of shares you own remains the same, you actually haven’t lost anything. As an investor, this low point is a last resort for selling.

From all of this, it might sound like I’m anti-margin loans, but that’s not the case. In many instances they can work really well.

Let’s say, for example, that previously mentioned $50,000 is currently sitting in an offset account and helping reduce the interest on your home loan. Instead of using that money directly, you could take out a margin loan.

If the market dips and the LVR does drop below the pre-agreed rate, you already know that you have those savings on-hand that can be used to top up the loan without leaving you in a blind panic.

Also, even if the return after interest in those early years is minimal, it will add up. Let’s say the return after interest is 3.5 per cent per year. Thanks to the magic of compound interest, after 10 years that $50,000 will become $70,000. And that’s a robust investment portfolio that you now own outright and can sit on for another decade or two.

Another perk of margin loans is that the interest can be tax-deductible because the money is being used to purchase income-generating assets. However, the potential benefits of this really depend on your existing tax bracket.

At the end of the day, margin loans, like every other investment strategy, will be a great option for some people and not quite right for others.

That’s because, as boring as it is to say, it’s true that there simply is no one-size-fits-all strategy when it comes to building your future. It’s about working out if something is right for you and what you want, and finding the balance of what you can feasibly manage.

While Warren Buffett is right to advise you to be greedy when others are fearful, what I think he forgot to mention is that your greed should only be driven by a clear understanding of the market and your objectives, but never by fear alone.

Victoria Devine is an award-winning retired financial adviser, a bestselling author and host of Australia’s No.1 finance podcast, She’s on the Money. She is also founder and director of Zella Money.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their personal circumstances before making any financial decisions.

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