# Borrowing to buy shares



## Guest (19 August 2004)

Can anyone tell me what the best way to borrow money to invest in shares is?

ie which banks offer good interest rates, etc...

Cheers
Alex


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## still_in_school (19 August 2004)

Hi Alex,

best way to borrow money for shares is through a line of credit (LOC), though i wouldnt suggest this, if you are new to the share game...

though i know comsec offer, some type of protected portfolio loan, (but your negative gearing your shares and interest rates are pretty high...)

if you do have some stock on hand, you may be able to get a margin loan, interest rates are a little higher, than a LOC, yet you have the risk of being margin called... but there are some flexible lenders out there, who are willing to lend up to 75% on certain shares as security... (though again this doesnt leave much room for a margin call)

Cheers,
sis


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## stefan (19 August 2004)

> Can anyone tell me what the best way to borrow money to invest in shares is?




If you are asking this question because you don't actually have any money to invest, then I suggest you just simply forget about it. If you seriously think that borrowing money to invest in shares is a good way to start then you're in for a big wakeup call.

If you want to borrow money against existing shares, then you'd have to look for margin lending as SIS mentioned already.

Happy trading

Stefan


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## Redwing (19 August 2004)

I thought the margin lending with regular/monthly top-up's reducing the amount you owe was a good idea, i read that some people were using this as a method to save for a deposit to purchase thier first house.

REDWING


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## stefan (19 August 2004)

> I thought the margin lending with regular/monthly top-up's reducing the amount you owe was a good idea, i read that some people were using this as a method to save for a deposit to purchase thier first house.




Redwing,
If you assume that your portfolio will make a profit, then yes, this MAY work. 
If you don't have money then you can't get margin lending. If you already have shares, then you can lend against them. Should you ever make a bad pick while on margin lending you will learn that your house is moving away quicker than you can keep paying to cover your margin calls. 

I'm tired about all those great tricks on how to get rich and how to do it. The only way to do it is to learn how to save money. Lending money to do that is a bad idea. A very, very bad idea. Keep in mind that you will have to constantly outperform your margin interest rate charge to really make a profit. Yes, you can offset the interest against your profit and save tax. You basically do negative gearing just as so many people do on their investment property. The catch is that this only works if you can sell your investment with a profit, simply because you will only get 48% of your loss back in tax savings. With properties this wasn't all too difficult so far, but it's about to change. With shares this is a very risky call. Negative gearing is paying $1 to get 50cents back. Yes, that's what it is. Nothing more, nothing less. The rest behind it is based on some calculations that will work if everything goes to plan. Unfortunately for most people, not everything goes to plan.

Think about it... Banks will happily lend you all the money in the world as long as you have enough security to cover their (and not your) risk. They will promptly knock on your door as soon as you start losing money to recover their (and not your) loss.

Saving money is a very basic thing. There is no magic to it even if people still think there is. There's big business about it and there are many, many books where you can spend even more money to try and save some.

1 + 1 = 2. Nothing can change this. But there are many people out there who will make 1+1 LOOK LIKE 3. 

In a bull market, just about every strategy works. But once the water starts moving out during low tide, you'll easily spot those "gurus" who were really swimming naked.

Happy trading

Stefan


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## Redwing (19 August 2004)

Thanks Stefan...

48 cents back in the dollar..not me- only 30c  ;D

Haven't touched my LOC on house yet.....


REDWING


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## GreatPig (20 August 2004)

Redwing,

If you're buying shares in a company structure, remember that you won't get the 50% CGT discount for anything you hold more than 12 months.

And depending on your situation and how you've got it set up, there is typically less flexibility in distributing profits to individuals.

Which doesn't necessarily mean it's not the thing to do, but just something to be aware of.

Cheers,
GP


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## tech/a (26 October 2004)

Interesting comments.

Firstly.If you wish to release the equity in your house or IP then the easiest way to do this is to have a bank advance it to you as a Line of credit.
You keep the asset the bank lends you YOUR equity at 7% (as an example).

Then if you want leverage you can use the Cash as security to trade Margin(2.5/1) or CFD's.(10/1). There is ofcourse derivatives or futures but the 2 mentioned are by far the best bet for 99% of traders.

I strongly agree with Stefan.If you cant prove to yourself that over a period of 3 yrs or so you CANT make a CONSISTANT profit of > 7% AND you dont understand the 2 edged sword on drawdown on leveraged instruments then you ARE going to be very miserable indeed.!!

HOWEVER I STRONGLY Disagree on the other hand.
If you can return say 20%/yr as an example and you can do it consistantly,you have handlable drawdown even when leveraged,then your in the position to create REAL WEALTH.
97% fail so youll need to be in the top 3%.

The topic is long and not on that can be answered fully in a few paragraphs.
Im attempting to bring it altogether in a few threads on this forum,for those interested in these concepts.

tech


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## kifoghorn (27 October 2004)

You would want to know as best as possible that the shares you buy with the loan will make at least enough to pay it back.

My moto; if you don't have it, don't spend it!


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## tech/a (28 October 2004)

I agree 100% Horn!!

But it can be done and when its done well can make amazing returns.

http://www.reefcap.com/ubb/Forum8/HTML/000304.html

http://www.reefcap.com/ubb/Forum8/HTML/000390.html

These links are to a method i have been trading live for 2.5 yrs.
Its a margin account just like that which I have talked about.

To have a $100K account you need to place a Margin of around $35,000.
As you can see 12 mths ago its value was $135,000.
So when you give the lender back his $70,000 youve made $35,000 or 100%.

Now the second link is the results for the last 12 mths.
From $135,000 to $200,000 so our original $35,000 is now $130,000 or $400% on our initial $35,000.

The total interest 7.5% or $5,250/yr-Tax deductable!!

Seriously if your serious about being in the 3% of wealthy sucessful traders you need to understand this (Well not only you---everybody).

Im attempting in other threads to explain how.

tech


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## RodC (29 October 2004)

Hi tech,

thanks for your postings, they're making great reading (both here and at reefcap).

Now that you've increased the portfolio from $100K to $200K and effectively reduced the LVR from 70% to around 35% have you been tempted to increase borrowings back up to 70% to allow more purchases?

regards,

Rod.


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## tech/a (29 October 2004)

Rod good question.

Firstly in the trading example Ive discussed this with Darrel(dl,he records the results each week)who was the one who initially asked me if Id be interested in designing a method "Live" and trading it-----as he was struggling to make  $$ in his potfolio.

Anyway our thoughts are to just keep it the way it is as its simple and easy to follow for those of any experience novice to "expert" (Drips under pressure).There is also the temptation to increase position size with realised profit.

As most of the profit in T/T is unrealised equity there will come a time when these issues will need to be addressed.Unless ofcourse the profit was taken and spent---which to any trader is an option---Tahiti looks nice!

On a personal level I add to my portfolio as soon as enough equity is available for a full position purchase.I keep around 5% buffer on top of the Lenders 5% so I dont get called and this hasnt occured in 2 yrs trading the method.

The result is a better return against initial equity(in my own portfolio).This is ofcourse part of a "Money Management plan" of which there are many(Plans).

IE Designing your portfolio to be "Free" trading.(another topic).

So in answer(Long winded) on the example traded no ----but will have to be addressed as time goes on.
Personally Yes and found it benificial albeit in 2 yrs minor but if things continued then the benifit would be exponential (increasingly benificial).

tech


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## tech/a (29 October 2004)

Meant to mention also.

The interest is pretty well all offset by the Dividends which are mostly franked(tax paid).So the risks are to me atleast no more than a tennent paying me rent which pays my interest.

Unlike Property we cant lock down rates from Margin lenders.

Still this sort of trading is so far "out of the square" for most that their comfort zone is severely compromised.

To those I would suggest starting with the Minimum.$17,000 (For BT Bankers Trust) which is what I did until you gain confidence in this way of trading and your ability to turn a profit with your trading method.

I think CBA is a little less!

tech


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## RodC (29 October 2004)

Hi tech,

thanks for the response.

I do a similar thing with my margin lend portfolio (keep a buffer of about 5% in addition to the lenders 5% - I use Comsec). I've been using my margin facility for over 3 years now and also have never been close to being called.
I did keep the loan at around 50% for the first year or so while I was getting comfortable with it.
I'm happy with the results I've had. They aren't as good as yours but for much of the time I've just "let it sit" due to time constraints, I've also targeted high yield stocks to ensure the interest is easily covered.

My method is certainly more "discretionary" than yours, but I do have rules that I stick to. My intention is to build up a high value portfolio with a decent dividend stream.

thanks again for the postings.

regards,

Rod.


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## crashy (31 October 2004)

A margin loan is an inefficient way to gear into shares. Its like paying a 30% deposit for an investment property. Why do it when you could put down only 5%? Im not saying it doesnt work, but I just think there are better instruments.

Funnily enough, there are already geared investments around, ones where you dont need to worry about margin calls. Would it not be better to spend that extra buffer on more stock? Instalment warrants offer better leverage, higher yields, less risk and easier reinvestment. 

Self funding instalment warrants are a great vehicle for people in the top tax bracket, since the dividend is used to reduce the amount owing instead of becoming assessable income. The franking credits however can still be used to reduce your tax liability. It also means that upon maturity there may be no further amount to pay, which makes them a "set and forget" investment with risk limited to the original outlay only. Compare this to a scenario where you bought stock on margin and the company goes bust, you lose many times more money than you put in. The company doesnt even have to go bust, it can just do a LLC or an AMP or a BIL (falling 50% or more), and before you know it you are well underwater and the broker is screaming for more money to cover your ever increasing margin. Been there, done that, NO THANKS!


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## tech/a (31 October 2004)

Crashy.

Interesting thoughts.
Valid too for certain investors.

Instalment warrents sure but there goes your ability to have large universe to trade from.Instalment warrents also suffer the same fate as any if the underlying doesnt perform.

Secondly why would an investor ride a stock down 20% let alone 50%?
Thats shear stupidity.

I dont think a Margin call is a bad thing.
Its a wakeup call------whatever it is that your doing isnt profitable!
Bet it altered the way you trade Crashy.

Ive never had one---probably dumb luck!

Finally any stock can go bust-----although some less likely than others thats why one should have a diversified portfolio, and diversified investments.

Ive also been there done that and its been pretty damned good for me.

There is more than 10 ways to invest each as valid as each other,yet more suited to some than others.

tech


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## Funda-Struck (7 January 2015)

I am looking into getting a loan to buy some shares, but am not interested in a margin loan. Reason being is because it is a speccy stock I will be buying, and the LVR will probably be 0.0

I don't have a funding issue, it's just it is tied up a bit at the moment and have seen a short term opportunity I am keen to get into...

Is a personal loan an option? Or is it difficult to claim the interest as tax deductible on a personal loan?

I am going to make an appointment with my bank to discuss this issue, just trying to get some background first.

I've always been a cash only type of person, so not too clued up on borrowing.:1zhelp:

Thanks,
Mick


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## themeinvestor (5 February 2015)

In The Red said:


> I am looking into getting a loan to buy some shares, but am not interested in a margin loan. Reason being is because it is a speccy stock I will be buying, and the LVR will probably be 0.0
> 
> I don't have a funding issue, it's just it is tied up a bit at the moment and have seen a short term opportunity I am keen to get into...
> 
> ...




You might need to see an accountant to get information re tax deductions.


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## burglar (5 February 2015)

In The Red said:


> ... have seen a short term opportunity I am keen to get into ...




Need money, ... just Nimble it and move on!



> Nimble charges the maximum allowed by law - a 20 per cent establishment fee plus four per cent interest per month, which translates to 92 per cent annually if compounded monthly. Nimble also spank you $35 for missed repayments and $7 per day until you've cleared the overdue debt.




Read more:
nimbles-dumb-little-loans


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## galumay (5 February 2015)

burglar said:


> Need money, ... just Nimble it and move on!




Have you got shares, Burglar?


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## pinkboy (5 February 2015)

It's all tax deductible,  so who cares what it costs? 

pinkboy :


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## burglar (5 February 2015)

galumay said:


> Have you got shares, Burglar?




I have literally millions of shares, galumay! *biglaugh*


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## Nortorious (5 February 2015)

What's other members thoughts on using CFD to leverage stock trading?

I'm looking into this but commsec seem to have a questionnaire with some questions that look some what subjective. Is it a matter of answering what they want to hear? 

One question for example:

5. When the market receives important unexpected news, will it be more likely to:
A) Stay where it is, because good and bad news are already factored into market prices
B) Become more volatile as prices react to unexpected news
C) Automatically closes

My opinion is that the price will move dependant on the supply and demand and if the stock has been accumulated, news could be used to drive the price up, preying on the public buying into the good news and the professionals offloading.... or the opposite. It could drop so the weak holders are absorbed. So I guess that could be B. 

But fuzzymentalists may think that the news is factored into the price already by the "insiders"...

And C, the stock would go into a halt if the news is price sensitive.... 

Is there an all of the above option?

I find it an interesting question.


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## themeinvestor (9 February 2015)

Nortorious said:


> What's other members thoughts on using CFD to leverage stock trading?
> 
> I'm looking into this but commsec seem to have a questionnaire with some questions that look some what subjective. Is it a matter of answering what they want to hear?
> 
> ...





What a great question.  Isn't this question all about efficient market hypothesis? It all depends on whether you believe the market is weak-form efficient, semi-strong-form efficient or strong-form efficient (and more fundamentally whether you believe in the efficient market hypothesis at all).

I think you need to answer what CommSec believes the answer would be.

I think the answer is B.  C is just wrong.  A is also wrong - we see it daily on the market that a company surprises the market with bad news or good news (notwithstanding a few insider trades here and there).

Also I think this acts as an educational tool - ie "Be careful the market can be volatile...."

I'd be interested to know the answer.


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## Value Collector (9 February 2015)

Nortorious said:


> What's other members thoughts on using CFD to leverage stock trading?
> 
> I'm looking into this but commsec seem to have a questionnaire with some questions that look some what subjective. Is it a matter of answering what they want to hear?
> 
> ...




They want you to write B.

I think they are just trying to make sure you know markets can be volatile.


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## Hodgie (9 February 2015)

Nortorious said:


> What's other members thoughts on using CFD to leverage stock trading?
> 
> I'm looking into this but commsec seem to have a questionnaire with some questions that look some what subjective. Is it a matter of answering what they want to hear?
> 
> ...




It has to be option B. The key here is that the news is unexpected therefore it will not be factored into the price. its the exact reason you get a big market reaction with something like an unexpected interest rate cut (such as last week - I think only about 1 in 5 economists were predicting a cut).


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## Nortorious (10 February 2015)

Thanks for your thoughts folks. Not sure if Commsec will provide answers to the questions when I get around to putting in a CFD application form.

I'm trading stocks at the moment and looking to leverage up with CFDs. Also keen to move into futures but it's finding the time at night to dedicate to learning that game...


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## themeinvestor (11 February 2015)

Nortorious said:


> And C, the stock would go into a halt if the news is price sensitive....




By the way, I said in an earlier reply that "C is just wrong". I said that because the question says the MARKET will shut, not that the stock would go into a halt.  Your point about halts and price sensitive disclosures is valid.


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