margin leading

[bransm]

This is something I've been looking at for a wee while,and seriously thinking off getting my feet wet atleast and give it a go,I know about the margin calls, etc.Thou am looking at using only 50% of the avaiable margin to reduce the change's of those,(ASB has told me that if I do that the share will need to fall approx 55% before a call is made,and the companies I'm looking at using this for,I dont think that will happen.(I know nothing is certain)

Anyway,how many people use it?,...and how are you finding it,any other traps/tricks you can pass on?

Thank's in advance

Bryan

[zyreon]

CFDs are best suited to trading, but some form of margin lending strategy like the one you mention would be suitable for a longer term investment strategy. Indeed you could probably add maybe a couple of % points to your return if you do it properly. For example if you assume that your portfolio will return on average 7.5% and you use margin lending to fund 30% of your portfolio then your leverage ratio would be 1/(1-0.3)=1.4286 so your return would be 1.4286*0.075=0.1071 or 10.71%. Of course that's using an average figure and you'd have to be able to ride out any downturns. Also you'd have to run the numbers to see if the portfolio could fund the borrowing costs or whether you'd need to pay them from other sources. Also you need to have some scale too as the registration fees last time i checked were about $300.

[small fish]

Was doing margin lending with asb for quite a while but when I started getting into the more speccie stocks they never lend you enough against them. Got some info from First Prudential in Australia haven't looked at it seriously yet though however their interest rate was a about 1% less than the NZ players. About 20% value of my portfolio is in debt and I would love to borrow more however i am a little nervous about where the markets heading in the next few months. In all liklihood I will try to repay this debt if the opportunity arises in the next few weeks so if the market falls I might be able to capitalise on it.

[Kookaburra]

I would tend to stay out of debt at the moment as the market is very shakey at present with no clear direction established but the risk of suddenly going down being quite high.

[shasta]

Bransm

I have used a Margin Lending A/c through ASB Securities for a few years now & like the concept.

I found that i often had the right stocks on watch, & never had enough "free" capital when i wanted to make a move & thus missed out on some large gains.

Tips & Traps - Don't invest all your cash, & make sure you use stop losses & have an buy/exit strategy & stick to it.

[Mick100]

quote:Originally posted by bransm

This is something I've been looking at for a wee while,and seriously thinking off getting my feet wet atleast and give it a go,I know about the margin calls, etc.Thou am looking at using only 50% of the avaiable margin to reduce the change's of those,(ASB has told me that if I do that the share will need to fall approx 55% before a call is made,and the companies I'm looking at using this for,I dont think that will happen.(I know nothing is certain)

Anyway,how many people use it?,...and how are you finding it,any other traps/tricks you can pass on?

Thank's in advance

Bryan

I'v used margin for some time now
The main advantage for me has been that I can have a bigger, more diversified portflio than I had previously. This has reduced the riskiness of my portfolio. If it weren't for the fact that I can borrow 70% against shares such as CEN and GPG I would not have them in my portfolio. The annual returns on total invested capital on such shares is only 15-20% but the return on my investment is quite a bit higher than that.

I have a good proportion of my funds in aussie miners and oilers many of which are not on the margin lending list however I get one or two of those companies added to the lending list each yr which in turn allows me to borrow more.
As long as your portfolio returns are higher than 10% per yr then margin lending is viable in my opinion.
.

[Tinker]

I've been considering it for a while but I'm put off by the thought that the IRD may use it as a pretext to classify me as a trader. I am an investor with the aim of building dividend income.

So do any of the you that use it claim the interest costs against dividend income and are you traders or classified by the IRD as traders?

[zyreon]

as far as tax goes consider it like an investment property, except replace rent with dividends.
the interest costs are a necessary cost incurred in the course of deriving dividend income...

so on that reasoning then when you go to do your b/e calculations you can calculate your borrowing costs as (1-T)*r so if tax rate is 33% and i-rate is 10% then (1-.33)*.1=.067 (6.7%).
Of course you'd have to work with after tax dividends also (and of course the beauty is -as with property- capital gains are tax free).

just make sure you follow the normal procedures to prevent yourself being classed as a trader, and if you're really paranoid either ask your accountant for more help or simply document each trade i.e. get a note book and for each transaction write a note outlining your reasons for investing (i.e. that over the long term dividend income should be consistently growing and will therefore provide me with good income, and while the company's growth prospects are good any capital gains will be incidental to my dividend income etc)

[zyreon]

good idea.

[Mick100]

quote:Originally posted by Tinker

I've been considering it for a while but I'm put off by the thought that the IRD may use it as a pretext to classify me as a trader. I am an investor with the aim of building dividend income.

So do any of the you that use it claim the interest costs against dividend income and are you traders or classified by the IRD as traders?

I do claim the interest expence against dividends and other income

If you are a wage earner I see no reason why you could not claim the interest expence against your wages/salary.

If you take the tax sheild effect into account then your effective interest rate is 1-2 % lower than the actual interest rate.
.