Investing in shares can be a daunting task, especially when it comes to borrowing money to do so.

However, borrowing to invest is an established wealth building strategy and the NAB Equity Builder is a simple and unique solution that can allow you to diversify your portfolio and grow your investments with loans starting from $20,000.

NAB Equity Builder is a unique product that allows you to borrow money to invest in professionally managed and diversified investments.

In a recent Money Money Money podcast episode, NAB Equity Builder Senior Product Manager Philip McCall joined host Glen James to talk about how the product works and how it can make investing more accessible.

Let’s break down the key points about how you can use this product to build your investment portfolio.

What is NAB Equity Builder?

NAB Equity Builder is a product designed to provide leveraged exposure to the share market without the margin call risk associated with margin lending.

As Mr McCall explains it, “You’re borrowing money to invest in ETFs and the shares that you either have or buy become the security for that loan.”

Unlike margin loans, which can trigger margin calls if the value of your portfolio drops, NAB Equity Builder removes this risk by focusing more stable investments and a disciplined approach to loan repayment.

Key benefits of NAB Equity Builder

No Margin Calls

One of the standout features of NAB Equity Builder is that it removes the risk of margin calls.

“We built a ‘margin call-free’ solution, by including the repayment discipline of a traditional home loan, which means that no fall in the market value of the portfolio can trigger an action from us,” Mr McCall said.

This means you won’t be forced to sell your assets at an unfavourable time just to cover a margin call.

What is a Margin Call? The difference between the value of the loan and the current value of your stocks is referred to as the ‘margin’. Normally, this difference must be maintained at a minimum level and, if the value of your portfolio falls below this ratio, it could trigger a margin call. With a regular margin loan that may mean you would be required to top up your account with cash or sell some of your portfolio to get back under the minimum loan to value ratio. NAB Equity Builder removes the risk of margin calls.

Diversified investments

NAB Equity Builder focuses on reducing volatility by restricting investments to ETFs and managed funds.

“NAB Equity Builder has an approved list simply restricted to ETFs and managed funds, the things that have embedded professional diversification,” Mr McCall says.

This approach ensures that your portfolio is likely to be more stable and less prone to sudden drops in value.

Flexible repayment options

With NAB Equity Builder, you have the flexibility to choose a loan term between 3 and 15 years, depending on your gearing level.

“We let clients extend the loan term to 15 years if they want, otherwise it’s 10 as the maximum,” Mr McCall says.

Additionally, if your gearing level drops below 30%, you can opt for interest-only payments indefinitely. If principal repayments have been paused, they will automatically restart if the gearing level moves back over 40%.

How to get started with NAB Equity Builder

Apply for a Credit Limit

The first step is to apply for a credit limit with NAB from as little as $20,000.

“When we approve you for credit, it is available for you to use indefinitely,” Mr McCall explains. This means you can wait for the right investment opportunities without any time pressure.

Choose your investments

Decide which ETFs or managed funds you want to invest in. You can either contribute cash or transfer existing ETFs to NAB.

“Most of our clients are ETF or managed fund investors already, and they use NAB Equity Builder because they’d like to increase their exposure to that particular investment management approach,” Mr McCall says.

Set Up Your Loan

A single instruction is all that is required to utilise the approved limit.  This involves selecting a loan term and repayment method.

Mr McCall says, “You just need to tell us which repayment method you want to pick, which loan term you want to pick, as well as which investments you want to buy”.

Monitor and Manage Your Portfolio

With NAB Equity Builder, you can monitor your portfolio and loan facility, in real time via a dedicated website.

NAB Equity Builder offers a unique and flexible way to invest in the share market without the traditional risks of margin lending. By focusing on diversified investments and a disciplined repayment program, margin calls are eliminated, creating a safer and more stable investment lending solution. Whether you’re a seasoned investor or just starting, you may be able to use NAB Equity Builder to help build your portfolio with confidence.

Important notes

Just like with any investment decision you make, you need to consider the risks. It’s important to know that investing in the share market (domestically and overseas) carries risk and requires a long term focus, as many variables can cause short term fluctuations; both down and up. Borrowing to invest can be an effective wealth building strategy, but gearing does introduce another level of risk. It magnifies the impact on your equity of increases and decreases in your portfolio. Also interest rates can rise over time, which increases the cost of implementing the strategy.

Any information in this article is intended to be of a general nature only and has not been prepared having regard to your particular objectives, financial situation or needs. Before acting on any advice in this article, National Australia Bank Limited (ABN 12 004 044 937 AFSL 230686) (NAB) recommends you consider whether it is appropriate for your objectives, financial situation and needs. NAB recommends that you seek independent advice before acting on any information in this article. The taxation information contained on this website is of a general nature. The tax consequences of investing will depend on your particular circumstances. We recommend that you seek professional tax advice before applying for a NAB Equity Builder facility.

This article is not a substitute for reading the NAB Equity Builder Facility Terms and Product Brochure. NAB is the issuer of NAB Equity Builder and recommends you consider the Facility Terms before making any decisions. The Target Market Determination for this product is available at nab.com.au/TMD.