Investing with debt - Opinions please!

[Snoopy]

If he requires companies with reliable cashflows who pay high yielding dividends (on a sustainable ongoing basis) i have many other options for him to look at

Actual cashflows are required to pay interest bills. Promises of cashflows don't cut it.

SNOOPY

[shasta]

Actual cashflows are required to pay interest bills. Promises of cashflows don't cut it.

SNOOPY

If he invests in companies without debt, wheres the interest coming from?

If you mean obtaining a return to cover the interest on his property loans @ 6%, there are plenty of stable companies who pay better than that!

[RRR]

Belg - I acknowledge that you are a better user of leverage ( a rarity in share investing). But, there are still a lot of companies in NZ paying dividends higher than the bank interest rates - I dont care whether it is normal or abnormal for NZ. May be the dividend yield is not sustainable for a lot of companies, but still they are higher than the bank interest rates for the time being.

Snoopy - Are you saying that dividend yield higher than bank interest rates is normal? It has been the norm for NZ for some time but I dont think it is normal. It is abnormal - for the right or wrong reasons. May be the asset values have been pushed down too much expecting a below par growth rate. But the yield is good considering the inflation for NZ (low inflation). Market is right of course. In the developing world the growth is spectacular, but the inflation is equally spectacular.

[JBmurc]

well I trade with borrowed money of course when things are bad my 07/08 year I took good size losses but as I trade within a LAQC company I got full return of my personal income tax(pays to have other than just Share trading income) which at the time was re-invested-- 09/10 I made some very good profits paid a very large Tax bill looks like I will be up for another 50k+ tax bill 10/11 fin year
personal I'm happy to trade with a certain amount of borrowing funds to may overall cap(which at this time is 50/50) this IMHO works as long as you are confident of your Share trading as for investing long term non-taxable It would really come down to how much you are to borrow and how much income you have coming in.
I pay round $190pw my personal income covers it easy

[shasta]

well I trade with borrowed money of course when things are bad my 07/08 year I took good size losses but as I trade within a LAQC company I got full return of my personal income tax(pays to have other than just Share trading income) which at the time was re-invested-- 09/10 I made some very good profits paid a very large Tax bill looks like I will be up for another 50k+ tax bill 10/11 fin year
personal I'm happy to trade with a certain amount of borrowing funds to may overall cap(which at this time is 50/50) this IMHO works as long as you are confident of your Share trading as for investing long term non-taxable It would really come down to how much you are to borrow and how much income you have coming in.
I pay round $190pw my personal income covers it easy

I used to use margin lending for many years, to free up additional capital to trade with, or for a special situation, without having to sell the longer term holds that i had in a separate account.

I personally regularly funded the margin lending account so i was hardly ever fully leveraged, & when things turn sour in the market/sector, i sold all trades/stocks on margin, & repaid the loan & left the funds with 0% margin used in a cash mgmt a/c getting good interest.

The loan fees were only $250 a year, though i never bothered to open a $AUD a/c so i got slaughtered on the NZD/AUD exchange on ASX transactions, but most of the funds i put into the ASX back at the start of 2007 was at 90c+

Margin Lending isn't for everyone, but for those who are disciplined, & can regularly fund the a/c, & have a tolerance for risk, its another investing/trading tool

[JBmurc]

I used to use margin lending for many years, to free up additional capital to trade with, or for a special situation, without having to sell the longer term holds that i had in a separate account.

I personally regularly funded the margin lending account so i was hardly ever fully leveraged, & when things turn sour in the market/sector, i sold all trades/stocks on margin, & repaid the loan & left the funds with 0% margin used in a cash mgmt a/c getting good interest.

The loan fees were only $250 a year, though i never bothered to open a $AUD a/c so i got slaughtered on the NZD/AUD exchange on ASX transactions, but most of the funds i put into the ASX back at the start of 2007 was at 90c+

Margin Lending isn't for everyone, but for those who are disciplined, & can regularly fund the a/c, & have a tolerance for risk, its another investing/trading tool

Yeah I just used my debt free section(Now has house with extra debt) as collateral with ASB so getting charged 6.3% for the loaned funds goal is to pay down the 400k debt we took on for the new house with tax paid profits from the share trading company and in time increase the loan for the sharetrading as the bank and market allows be good to keep my trading debt no higher than 60% of total portfolio value ,got a ASB AUD account with costs a spot over interbank rates on AUD/NZD exchanges (should have got years ago saves if your moving fundes to and from AUS)which of course you do now and a again to pay for you loan interest

[Snoopy]

If you mean obtaining a return to cover the interest on his property loans @ 6%, there are plenty of stable companies who pay better than that!

Yes, but you do have to check out if that 6% plus yield is really sustainable with a little stress testing.

I used to use margin lending for many years, to free up additional capital to trade with, or for a special situation, without having to sell the longer term holds that i had in a separate account.

I personally regularly funded the margin lending account so i was hardly ever fully leveraged, & when things turn sour in the market/sector, i sold all trades/stocks on margin, & repaid the loan & left the funds with 0% margin used in a cash mgmt a/c getting good interest.

Margin Lending isn't for everyone, but for those who are disciplined, & can regularly fund the a/c, & have a tolerance for risk, its another investing/trading tool

Good advice for you and others in your situation Shasta, but note the embolded bit of your quote!

You make the caveat that if you can regularly put a little money into your account, then you won't have any trouble. I agree, but this is not the situation that Darkred may find himself in when he goes overseas. Your suggestion of borrowing to put money into development projects with no cashflow, when Darkred has told you that he may not be able to fund sudden calls on capital when he is overseas is IMO totally unsuitable advice for his situation.

SNOOPY

[Snoopy]

Snoopy - Are you saying that dividend yield higher than bank interest rates is normal?

Taking the view of the last 110 years as a whole, yes.

It has been the norm for NZ for some time but I dont think it is normal. It is abnormal - for the right or wrong reasons. May be the asset values have been pushed down too much expecting a below par growth rate

Growth expectations over the last 30 yaers or so have been much higher than historical growth expectations. And that has been fuelled by higher infaltion over that period as you suggest. I woudl say the last couple of years has been a return to normal.

SNOOPY

[RRR]

Good article in NZH

http://www.nzherald.co.nz/business/n...707319&ref=rss

[DarkRed]

Thanks for all the good information everyone. I have been reading it the last week but not been able to reply.
Discovered last week how well the medical profession is payed! anyway...

UPDATE

So I have come to a bit of a decision. I am planing on investing an additional 10k shortly. That will leave me with around 10k of my 30k flexi loan to cover unexpected costs e.g. tenants moving out, not paying rent etc.

The 10k I have available I am looking at using 5k to increase my holding in my existing portfolio with it most likely going to RYM at this stage.
The extra 5-6k I am looking at heading to the ASX with some higher risk investments there. Thinking three splits of 2k each (could that be to small?)
Shasta - Done a bit more research into some of the companies you have said are worth looking into. Currently researching AYN and HLX, both look interesting!

I still have Pike River memories close to home tho. I know its different with open cast and not mining coal...