Smart use of debt

Published in The Sunday Age, March 2006 by David Potts

You ask this man about your money. But where does he put his own? And how are his returns?

Dale Gillham, author of the bestselling book How to Beat the Managed Funds by 20%, runs Wealth Within which has set up Australia's first Diploma in Share Trading and Investment.

If you were given $20,000 where would you put it?

I would place the money into my margin lending account and then borrow another $20,000 to directly invest $40,000 in solid blue-chip shares, because last year the top 50 stocks returned 22 per cent and with my strategy I outperformed them and the average fund manager.

What was your first investment?

I’d like to say my first investment was very astute, but at 19 I had a knock on the door from an insurance salesman selling policies that he claimed would secure my future and ensure I retired comfortably. However, within 5 years my investment was less than half the amount I had invested and it was the salesman who was going to retire well on the commissions he was receiving, so I decided to cash in the policy and use the money as a deposit on a house.

What's your investment philosophy?

I am a big advocate of investing directly in shares and property. One of my best decisions was to take control of my future and educate myself to make my own investment decisions – and it has paid off handsomely.

What are your current investments?

I have a wonderful partner who I invest time with, which reaps its own rewards and I have some great friends and associates who I enjoy spending quality time with. Investing is not just about assets. But for my money, the only way to go is direct shares and property.

What's your best call?

In regards to shares, Caltex and QBE about three years ago: both did very well. However, a good call is not always about what made a better return; sometimes the best call is exiting before you lose. I have always found in investing or trading that it is what you do not loose that determines what you make.

Worst call?

That’s a tough one. In my early days I invested in a share on a hot tip with no knowledge about what I was getting into. Needless to say I made no money - investing without knowledge is gambling.

Do you own property?

Technically no, as I don’t own assets in my own name, but I do control assets through my family trust and property is part of my overall investment portfolio. I think property is a great investment, especially positive cash-flow property.

Do you have a mortgage?

I don’t but my family trust does.

If so, are you accelerating repayments?

My investments are structured so that the cash flow I receive from an investment in shares pays for other investments including repayments on my loans. 

I would only accelerate payments on bad debt rather than investment debt. 

Often people think it is faster paying off debt before investing, but smart investing using debt will pay off loans faster.

When do you plan on retiring?

Right now I love what I do and I couldn’t imagine doing anything else – so I haven’t considered exactly when I will retire. What I do know is that it will be back in my home town of Geelong near the water.

How's your super looking?

It’s doing well and with the flexibility of superannuation choice I will continue to build up a strong nest egg in retirement.

What's your No: 1 financial tip?

Don’t take tips from friends or work colleagues - many people lose money on hot tips – and never invest without understanding the consequences.

To learn how to gain the required knowledge to ensure your success in the share market click here.

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