Summary
Today I’m interviewing Ben, a 34-year-old husband & father hailing from South Australia who is well on his way to reaching financial independence.
Ben reached out to me via my website and offered to share his personal experience with the NAB Equity Builder. This is a really popular financial product that often appears on financial forums so I thought it was a great opportunity to find out what it’s really like. We take a deep dive into the pros & cons of the NAB Equity Builder and how Ben and his wife are using it as a significant part of their journey to FIRE.
Some of the topics in today’s episode include:
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Ben’s backstory and why he chose to invest in shares using the NAB Equity Builder.
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What is the NAB Equity Builder and how does it work?
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Margin calls, LVR and what makes the NAB EB different from other margin loans.
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The NAB EB interest rate, fees and application process. Who actually owns the shares?
- How much Ben borrowed to get started and what he used as collateral.
- What extra gains has Ben made using the NAB EB over the last couple of years?
Links
Transcript:
Heads up grammar police, the following transcription is half human half machine and not 100% perfect so expect a few typos and errors…
Coming soon…
Great podcast AFB, listened to it this morning on my way to the office.
I too use a NAB Equity Builder (and did a pretty big guide on my Blog) to get me to financial independence quicker. It may not be for everyone, but I think if you have that appetite it’s worth looking into. Not only for the tax benefits but having more skin in the game, with the reduced risk of no marlin calls.
Great product and great podcast, love your work.
Thanks mate!
Yo, that’s a really good guide mate. I’ve put a link to that guide in the show notes 🙂
Hopefully they start opening up applications again because I think there’s a huge demand for that product in Australia atm.
Great podcast, and I’m super impressed that Ben had enough courage during the COVID crash (and being -$120k in loss of his portfolio) to then borrow even more money and investing more into shares. In hindsight it’s obviously the best decision he could have made, but to have made it while you’re in the red and during the crash is very impressive. I chucked a bit more in during the crash but didn’t have the courage to put as much in as I could have >.<
My only question would be that he seemed to have invested mainly in Australia (and he mentioned the 4 LICs). I wonder if that's so the dividends would cover the loan interest? With his seemingly high income, I would have thought he could cover the interest with his wage anyway and would have been better to get some growth stocks and international diversification as well?
I'm currently debt recycling and have actually chosen to go more international/small cap/emerging for more growth, though the dividends won't cover my interest repayments I'm pretty comfortable with that. Would love to know his overall portfolio weighting % (and what's in the NAB Equity builder and what's outside).
Thanks Kevin. Sorry we didn’t actually get into any of this as the pod was predominantly about the NAB EB.
It was actually quite easy staying the course as I read a lot & listen to a lot of podcasts during work hours while I am operating machines & listening to people like J L Collins (& other Fire’es) really helps with the psychology needed. I am also naturally comfortable with risk as when I was invested in property I was $1million in debt so borrowing $650k to buy assets that are more diversified wasn’t too difficult. I’m also comfortable with my employ-ability & ability to find more work if needed as there is huge demand for operators across the country. I’m also in my peak earning years as I’ve made a lot of hard decisions & sacrifices earlier on to get myself in the position I am now so ability to service debt has become substantially easier.
As for our investments we are diversified but we do have a dividend/franking credit focus initially but we will aim to add more international investments later when its beneficial to do so.
Currently in our Family Trust we have A200, VAS, NDQ, VTS, BKI, MLT, AFI, AUI. Our 3 largest holdings here are A200, VAS & MLT now after their incredible run.
Our ESSP is the company my wife & I work for, we have another 2 US stocks that we have a high level of conviction in & also another speculative mining stock which has just been approved for funding & is looking good.
We also have our SMSF which we have US & AUS stock investments in.
We live entirely off my wifes wage & all my income plus bonuses, tax returns & dividends etc go to buying new investments or paying down debt which easily covers the payments & reduces principal. So much so that I plan to semi retire next year & work permanent part time so I can spend more time with the kids. After taking this into account it will still only take my wife & I 4 years to pay off the loan in full or 3 years if I stay full time. I will definitely be choosing part time haha.
But we more than likely will be keeping the NAB EB open so we can utilise it again if the market drops. So in good times when the market is rising we will pay down the debt & when the market tanks or corrects, use it again to capitalise on the opportunity. Hope that helps answer some of your questions.
Hi Ben, thanks for the comprehensive answer! Yes I agree a kind of “transition to FIRE” is great for most people if they are able to slowly cut down work (not all work allows that). I don’t have a company/business, but am self-employed and my wife has flexible work. Thus we try to only work 3-4 days a week even now.
We’re at the half-way point of FIRE at the moment and thus I’m considering some kind of Flamingo FIRE (We can live of 1-2 days/week work each easily) while we have a 1 year old and planning for another kid. My other thought is it might be better to spend the next few years more at home with the kid(s) and I could really go back to more work when they are in school. I note that your kids are older so what would you think of that plan with your experience? However I do find it hard to not work as I don’t do that much on my days off and can calculate how much money I could have earned instead!
Though at the moment we can’t go anywhere further than 5km from our house anyway (I live in Melbourne, thus constant lockdowns since we had our COVID baby in March 2020…). However I’m keen to show my toddler that there is more to the world than the house and playgrounds (as we loved to do traveling/hiking/beach etc pre-COVID).
If I had discovered shares earlier & had started investing like I am now I would have been retired already with a substantial portfolio. But I instead went the property route & didn’t get anywhere for a significant period of time (8-9 years) & missed out on all that time with my kids as I was fifo. It’s been the single biggest regret of my life. Spending time with kids is the most important thing because 80% of the time you’ll spend with your kids will be in the first 18 years, the last 20% is through out the rest of their lives. So if you miss it it’s gone forever.
Excellent podcast AFB.
Well done to Ben and thanks for sharing his story.
Hi Ben,
Interesting to hear the podcast. May I know if you have used the NAB EB funds invested through the family trust ?
I have set up a family trust recently and interested to apply for the EB product and invest through the trust.
Thanks
Hi KG,
Yes, that is correct. As i stated in the podcast my wife & I invest through a family trust. Little bit more paperwork & a little fee but not overly complicated. Good luck for whatever you decide.
Hey Ben,
I’m curious how you invested in direct international shares through NAB equity builder? I can only see the NAB margin loan allowing international shares.
Cheers
Hi Chris,
I didn’t invest in direct international shares through NAB Equity Builder. As you have pointed out this is not possible. All direct share investments are with my own equity. Hope that helps. Let me know if you have any other questions.
Great Podcast here as always on! A great crawl walk and run approach into leverage into Shares/ETF/LICs. Think for folks who have a PPOR/IPs (and have decent equity sitting in it), drawing down on that would be a good option too. I can see the benefits of both the options with a strong difference in rates you get ~1-1.5% between different rate options which could probably pay/address any tax drag from Div/CG added onto high income earners. Just had started the process and it is looking good…bottom-line from Mr. Ben Bogle 🙂 – Conviction and Stay the course and lets human evolution work the compounding magic…
Step 1 debt recycle PPOR into ETFS. Step 2 additional funds via NAB EB but only @ < 30% LVR for IO.
Keep both loans IO where possible and pray.
Awesome podcast – thanks Ben and AFB! I’ve thought about NAB EB in the past and also been put off by others complaining about long waiting periods but Ben’s experience has me thinking maybe just apply as I should qualify pretty easily without any red flags.
This should be stating the obvious but the reason why they track your LVR is because it will determine how much more you can borrow.
If you are over the limits they have in place, you won’t be able to borrow more money without having to provide additional equity (either cash or more shares).
Why is this important? Because if you are DCA’ing to make sure you take advantage of the ups and downs of the market but then end up over-leveraged and unable to borrow more to invest regularly when the market is down, you’ll be missing out on the upside that you get from the DCA’ing approach.
And DCA’ing is what gives shares an edge over property (which has the benefit of leverage) so while you won’t get a margin call, it comes with its own risks and there are a lot of benefits of keeping some headroom in case of market dips.
Except the data shows that it’s better to invest it all up front instead of waiting for a ‘dip’.
Except that data is based on a lump sum of cash not borrowing a lump sum so the maths would need to be updated along with risk profile.
Plus I’m not saying “buy the dip”, I’m saying “buy continuously” through peaks and troughs which means not always borrowing to capacity.
Yes, you are probably right & I was a bit thrown off by the question because I had never really considered it before being asked but it’s also true that how much you can borrow is also determined by how much debt you can service. Both go hand in hand I guess.
Good podcast but NAB have not been taking applications for about a year?
Yes, the product remains closed to new applicants. I registered in Jul of this year for updates but nothing received and it is still closed. We might have to wait for the heat to come out of the market and the rush of new entrants to taper off 🤷♂️.
HI Ben & AFB, great podcast.
Ben would you be able to point us in the right direction of the tax strategy you mentioned that you had clarified by Noel Whittaker? Thanks
Book “Retirement Made Simple”
Or read his newsletters if you can get hold of his old ones.
Thanks Ben, appreciate the response
Great episode. One thing that should be noted about NAB EB though which Ben didn’t touch on is how difficult it can be to get the desired loan amount in the first place.
ie, you may be on a decent salary, lets say $130K p/a, have very low overheads, thus high very serviceability, but not alot of asset wealth. The bank will lend you very little. Could be a max of $30-50K even though you could afford repayments $2k+ p/month.
This aspect of it is really frustrating. You constantly have to apply to increase the loan every few months or so. Even if you have the cash to ensure to LVR starts as required, because you don’t have any assets, they wont give you the loan amount.
They won’t tell you what the exact lending criteria is, but from experience you need approx 50-70% of requested loan amount in existing asset value. Hope that helps some folk out there.
Hey Ben, thanks for the contribution. What duration do you usually go with? I quickly crunched the numbers. WIth cash contribution of $100k, loan @ 80% 400k, 10 years duration, the average return of 6%, you end up doubling your investment every 10 years. Am I right in saying you`ll pay taxes every year on returns? From my quick checks “Returns – Interests paid” will always be bigger than zero. The principal paid is not tax deductible.
I’ve already doubled my investment including all costs etc because I kept purchasing throughout the covid crash but one usually expects their portfolio to double every 7-10 years obviously depending on returns.
We ended up getting a tex return of about $3k this year. Everyone’s situation is different but with our deductions + franking credits + loan interest etc we came out positive again this year.
G’day AFB,
Is there anyway to contact Ben, my situation is nearly identical to Ben but haven’t gone done the NAB equity path yet curious to how he structured it with a trust for the deductible side of things.
Thanks
Cheers
Jake.
Hi Jake. Put your email down here & I’ll send you one to touch base.
Thanks AFB & Ben, great pod as usual and really interesting and useful topic.
One question I was hoping would be asked was “why doesn’t everyone use a product like NAB EB”? If your risk appetite is there (which it is for most FIRE-eys looking to invest large sums of money to grow their wealth), why not use this kind of product to get access to significant capital and get substantial funds invested in the market earlier and maximise compound growth benefits? Generally this is the advice in scenarios where people get a large lump sum from inheritance or similar, so why not use the same attitude with this product for those that don’t have other capital? Yes, there is always risk, but if you are comfortable with your strategy and there are no margin calls and the repayments are manageable, it seems to me like this is a no brainer and should be even more widely used in the FIRE community. It allows investors to leverage in to shares just like a home loan does for property investors, so why isn’t this product as widespread as home loans are? Am I missing something here?
Cheers, James
This is my thoughts exactly too but I do realise people do have different risk profiles & people are at different ages & different life stages so something that is right for one person isn’t necessarily right for another but in saying that I do believe in my own opinion that if you can afford to do it or something similar then you should & starting as young as you can.
If you look at a lot of the best businesses out there they always carry a portion of debt even though they can comfortably pay them off as they can use it to offset other parts of their business.
A lot of smart people say you should treat your portfolio like a business & that’s what I try to do. I want get it perfect everytime or at all for that matter but I do the best I can with the knowledge I have at the time.
Hello Ben – great podcast, enjoyed learning about the NAB Equity Builder. Quick question – what style of repayment method did you opt for – Home loan method or Straight-line method? Thanks.
Hi SJ,
I went with HLM as I wanted to reduce the repayments as the SLM tends to be significantly higher & I wanted to increase my loan as quick as I could which meant saving & investing more earlier on. Now that I have my equity builder where I want it & can use any extra money I have to pay the loan down faster by making extra contributions but not having the higher SLM repayments hanging over my head. Just a little more flexibility.
My understanding is that if you use the SLM you will pay less interest over time if you stick to the repayment schedule but if you use the HLM & make a lot of extra repayments then the HLM could work a lot better in you favour.
That’s what we are doing anyway. Good luck.
Not advice. Do your own research.
Does anyone know when NAB will accept new equity builder applications?
Would be great to have an update with Ben as EB rates have markedly increased and with 2022 being a crap year
Hey mate. Sure.
I sold all out of NAB EB mate for about $200k profit after cap gains & since moved my money into other stocks since 2022 was a crap year but was also the year of opportunity & bought about plenty of options for good stocks at good prices. But NAB EB definitely helped while we had low rates.
But as rates increased it became less viable especially since I have now semi retired & work part time now. If I had stayed full time I probably would have kept things as is. But I chose to coast fire instead.
I had my 3rd daughter in March 21 which helped make my decision & now I only work an afternoon shift 5.30pm – 12am so I look after the kids during the day & when the wife finishes we do a swap & I head off to work. Working part time my salary is still around $100k total package so not too bad considering the has & the fact I only work 6 months of the year.
Also, we still have the full $650k EB facility still open so we can use it whenever we like & prob will again in the future. Nice option to have.
Hi Ben, thanks for the update on your journey. Just wondering what industry you work in? It’s a great income for PT hours. Cheers mate
I’m interested in NAB, but only want to start with the minimum investment amount, $20,000. I have a substantial share portfolio but have never borrowed to invest in shares.
What taxation advantages are there with this amount? Would I be better off borrowing more?
IMO borrowing the minimum of $20k would be negligible at best. Especially if you already have a substantial share portfolio. Currently interest rates are too high for the NAB EB to have a positive effect. If you are comfortable with paying a little extra in interest for the opportunity of owning the shares sooner, you understand that you would be paying more to have a larger position & you can easily make the repayments, then that would be fine. $20k doesn’t seem worth it to me. I would personally only have $100k plus & has been well over $500k before but have since changed my position as you can read in the comments. If you are accumulating & expect to still be working for the next 5-10 years, then it’s not a bad option but wouldn’t be worth the hassle otherwise. Please “DO YOUR OWN RESEARCH” & don’t make any decision that could negatively impact your wealth.
What should be the optimal interest rate? I’m wondering if the next decade will be a lost one as the market looks like it will be side ways
I want to use Nab equity builder instead of property for investment. I’m scared of renters.
Sorry Dan but I don’t give advice as everyones situation is different & so is their tolerance to risk. Because of that an optimal interest rate will be different for everyone. Obviously the lower the better lol.
You’ll have to work out what is right for you.
I personally wouldn’t invest in property either as i personally don’t like dealing with renters, PM’s & forking out money for all the costs associated with property. Does that mean property will be a bad investment? I have no idea. Some areas will be and some areas won’t.
Just read the update from Ben- great to see how its all going