# Margin Loan questions



## shogun (26 March 2008)

Hi all - I am thinking of getting a margin loan.  

I am with ANZ e-trade but they seem to have a limited number of stocks you can borrow against which includes no managed funds.  St George on the other hand have managed funds in their list of eligible stocks to borrow against.  This sounds preferable as I could get a diversified portfolio more cheaply (less broker fees) by buying a managed fund.  If I build up my own diversified portfolio it would cost me a bomb in fees as I would have to pay for each trade.

Any tips here on what to look for?  Am I on the right track or are both of these products no good and I should be looking for something else?

By the way - 9.9% is a high rate for a margin loan I reckon.  What is the average long term return on equity for a diversified stock portfolio?  If it is less than 9.9% I am being screwed by the bank!  Hopefully it is 12% or more.


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## Viginti (26 March 2008)

*Re: Margin Loans*

Hi Shogun,

The ANZ Margin Loan has quite an extensive list of direct shares, and if you elect to use the diversified feature (direct shares only, so may not be of use if you are looking at managed funds) you can access what I believe is the largest list of direct equities from any margin loan provider (feel free to correct me if I am incorrect here folks).  ANZ Margin Lending do also offer margin over managed funds, however I am not sure how you go about purchasing (other than seeing an ANZ Financial Planner).

Hope this helps.

PS. Should disclose that I work for ANZ, but think I have only stated facts here, so not biased


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## shogun (26 March 2008)

*Re: Margin Loans*



Viginti said:


> Hi Shogun,
> 
> The ANZ Margin Loan has quite an extensive list of direct shares, and if you elect to use the diversified feature (direct shares only, so may not be of use if you are looking at managed funds) you can access what I believe is the largest list of direct equities from any margin loan provider (feel free to correct me if I am incorrect here folks).  ANZ Margin Lending do also offer margin over managed funds, however I am not sure how you go about purchasing (other than seeing an ANZ Financial Planner).
> 
> ...




Thanks!  Appreciate it and don't mind at all if you work there.  I know you are just stating facts in a personal capacity.

I will look up the diversified feature - not 100% sure what that means but I think I can guess.  

My interest is to set up a levered diversified portfolio but not pay a fortune in trading fees.  I thought my only option was to buy a managed fund that was already diversified.  It sounds like I have other options (diversified feature).


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## CATAPILLAR (26 March 2008)

*Re: Margin Loans*

By the way - 9.9% is a high rate for a margin loan I reckon.  What is the average long term return on equity for a diversified stock portfolio?  If it is less than 9.9% I am being screwed by the bank!  Hopefully it is 12% or more.[/QUOTE]

I understand with a Margin Loan the interest is 100% tax deductable. And anything related to making your trades is tax deductable. All that a side you want to make a return on your investments.
CATAPILLAR


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## shogun (26 March 2008)

*Re: Margin Loans*



CATAPILLAR said:


> I understand with a Margin Loan the interest is 100% tax deductable. And anything related to making your trades is tax deductable. All that a side you want to make a return on your investments.
> CATAPILLAR




Yeah - but your return is taxed as well (either as dividends now or as capital gains tax later) - so you could argue that when I compare 9.9% to the return on equity that it is an even comparison (apples vs apples).  

But there is a timing benefit though.  i.e. deduction for tax due to the margin loan now and paying capital gains tax later.  And there are franking credits too which make the comparison difficult.

Still - I think the bank takes their fair share of proceeds at 9.9% (maybe it is even higher now with the credit crunch - I haven't checked).


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## CATAPILLAR (26 March 2008)

*Re: Margin Loans*

I don't know who I hate more the Banks or the ATO. We are the ones making the hard decissions on trying to make money and the banks want their money weather your making a profit or not. Then if you make a profit the ATO want a nice cut too. It should be a set percentage like 10% on your profit. There really no incentive to make money unless it's sh#t loads and that's not so easy to do.
CATAPILLAR


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## Struzball (26 March 2008)

*Re: Margin Loans*

amen


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## ROE (27 March 2008)

*Re: Margin Loans*



CATAPILLAR said:


> I don't know who I hate more the Banks or the ATO. We are the ones making the hard decissions on trying to make money and the banks want their money weather your making a profit or not. Then if you make a profit the ATO want a nice cut too. It should be a set percentage like 10% on your profit. There really no incentive to make money unless it's sh#t loads and that's not so easy to do.
> CATAPILLAR




I have no problem with tax.. If I make a profit I'm happy to pay my fair share of the tax and give something back to society.

Taxing is used to fund schools, infrastructure, research and less fortunate people.

Without a tax system, you probably wont have the internet infrastructure you use today.

It's very close to 10-15% you talking about anyway... if you hold your investment for more than a year you get 50% CGT concession

say you make 100K and hold it for 12 months and 1 day
you end up pay 50K on tax at what ever tax bracket you on
mostly be 30% so that would be 15K

15K of 100K is 15%


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## Dezza (27 March 2008)

*Re: Margin Loans*

If you're after managed funds, Colonial First State (CFS) have FirstChoice Margin Loans with variable rate of 10%. However, it only lets you have a Loan to Value ratio (LVR) of 50%.

Colonial Geared Investments have a higher LVR of around 70%, depending on what your security is. Interest rate is 10.50%.

CommSec has a ML as well at 10.35% and that lets you invest in shares and direct funds. LVR depends on security, but also around 70ish%.

You should make sure you are able to meet the estimated repayments based on the rate you do decide to take, and make sure you can meet any increases in rates (e.g. can you meet the repayments if the rates go up by 2% or if the portfolio drops by 20%?). 

Also, check your personal insurance (e.g. income protection), in case you are unable to work and make the repayments on the loan. Otherwise, you'll end up like Allco or ABC Learning Directors and selling up stock when the sh*t hits the fan.

If the rates are higher than the returns, the negative gearing will help reduce your taxable income, however, you'd hope that the long-term capital growth of your investment will be greater than the rate of interest. Typically, you'd want an aggressive portfolio, otherwise if the rates are about 10% and you invest in cash with them which only gets around 7%, you won't get very far. 

Note: I work for CFS. Not product pushing, just providing info that I know of. Please review your personal situation and investment objectives to make sure gearing is suitable for you.


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## white_goodman (30 May 2008)

*Margin loans*

im thinking about getting a margin loan through commsec for $20,000 (thats their minmum), but they also say minimum draw down is $500....so my question is...

is the $20,000 like a credit facility where you only pay interest on what you use or am i paying interest on the entire $20,000 amount, cos i only really wanna borrow up to like $10,000 over the next month or so


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## prawn_86 (30 May 2008)

*Re: Margin loans*

If your a beginner (which you have said you are), i would STRONGLY recommend you just using normal cash without leverage for the first year or so.

That way if anything unexpected happens you are shielded. 

Learn to walk before you can run etc etc


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## white_goodman (30 May 2008)

*Re: Margin loans*



prawn_86 said:


> If your a beginner (which you have said you are), i would STRONGLY recommend you just using normal cash without leverage for the first year or so.
> 
> That way if anything unexpected happens you are shielded.
> 
> Learn to walk before you can run etc etc




ive been investing for over a year with my own money and still are up 15% or so overall, i only wanna take out gearing levels of 40% or so, im doing it for learning experience...


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## Joe Blow (30 May 2008)

I have merged two threads dealing with questions regarding margin lending and margin loans. 

This way we can keep general questions on the one topic in the one place rather than having 50 threads called 'Margin Loans' all asking one question.


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## white_goodman (30 May 2008)

Joe Blow said:


> I have merged two threads dealing with questions regarding margin lending and margin loans.
> 
> This way we can keep general questions on the one topic in the one place rather than having 50 threads called 'Margin Loans' all asking one question.




sorry for that  cheers


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## Santob (30 May 2008)

*Re: Margin loans*



white_goodman said:


> im thinking about getting a margin loan through commsec for $20,000 (thats their minmum), but they also say minimum draw down is $500....so my question is...
> 
> is the $20,000 like a credit facility where you only pay interest on what you use or am i paying interest on the entire $20,000 amount, cos i only really wanna borrow up to like $10,000 over the next month or so




I believe you only pay interest on what you've borrowed, but you don't earn any "interest" on what you haven't used.

What I did before getting my margin loan with Commsec was I took my list of shares that I own, and figured out which of them Commsec have as accepted shares, put the % of borrowing against each share, threw out ones that they don't accept. and then Transferred across the LOWEST % value. That way I'm hopefully staying as far awar form a margin call as possible.


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## white_goodman (30 May 2008)

*Re: Margin loans*



Santob said:


> I believe you only pay interest on what you've borrowed, but you don't earn any "interest" on what you haven't used.
> 
> What I did before getting my margin loan with Commsec was I took my list of shares that I own, and figured out which of them Commsec have as accepted shares, put the % of borrowing against each share, threw out ones that they don't accept. and then Transferred across the LOWEST % value. That way I'm hopefully staying as far awar form a margin call as possible.




oh so i cant use some of my shares as equity if they arent accpeted by commsec?


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## tech/a (30 May 2008)

If you understand the correct use of leverage and your position sizing using fixed fractional then you wont be taking on any more risk than trading with your own money.

You use leverage to take on a position size that you normally couldnt given your capital.
The risk doesnt alter.

Here is how.
Say you have a 20K account (Your capital)
You have another trade with $10000 in it.
Say you want to take a position in BHP.
You can risk $ 400.
Your buy is $1 from your stop so you can buy 400
capital doesnt allow this.
However margin will get you the trade.

Same risk.


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## Santob (30 May 2008)

*Re: Margin loans*



white_goodman said:


> oh so i cant use some of my shares as equity if they arent accpeted by commsec?




if their LVR is 0% then it doesn't contribute to the lending value. Check their list of approved shares.


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## Tysonboss1 (30 May 2008)

*Re: Margin Loans*



CATAPILLAR said:


> I don't know who I hate more the Banks or the ATO. We are the ones making the hard decissions on trying to make money and the banks want their money weather your making a profit or not. Then if you make a profit the ATO want a nice cut too. It should be a set percentage like 10% on your profit. There really no incentive to make money unless it's sh#t loads and that's not so easy to do.
> CATAPILLAR




well offcoarse the bank wants their share wheather you make money or not,... think of it like you are renting there money, and the ato only want a share of the profit, and they give you a 50% discount on the capital gain part of the profit.


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## Macquack (30 May 2008)

*Re: Margin Loans*



Tysonboss1 said:


> well offcoarse the bank wants their share wheather you make money or not,... think of it like you are *renting there money*, and the ato only want a share of the profit, and they give you a 50% discount on the capital gain part of the profit.




Its not the banks money. Its the peoples money.

" If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs. "
Thomas Jefferson, Letter to the Secretary of the Treasury Albert Gallatin (1802)
3rd president of US (1743 - 1826)


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## white_goodman (31 May 2008)

*Re: Margin Loans*



Macquack said:


> Its not the banks money. Its the peoples money.
> 
> " If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs. "
> Thomas Jefferson, Letter to the Secretary of the Treasury Albert Gallatin (1802)
> 3rd president of US (1743 - 1826)




well if there was a better system it would have been brought into place


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## Macquack (31 May 2008)

*Re: Margin Loans*



white_goodman said:


> well if there was a better system it would have been brought into place




Do you think the bankers would happily give up their power to issue/create money? Not likely.

John F Kennedy tried to reduce the power of the Federal Reserve(a private banking cartel) and look what happened to him!


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## white_goodman (9 June 2008)

*Re: Margin Loans*



Macquack said:


> Do you think the bankers would happily give up their power to issue/create money? Not likely.
> 
> John F Kennedy tried to reduce the power of the Federal Reserve(a private banking cartel) and look what happened to him!




sounds like you have watched zeitgiest too much


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## Eddyl (10 June 2008)

*Re: Margin loans*



Santob said:


> I believe you only pay interest on what you've borrowed, but you don't earn any "interest" on what you haven't used.
> 
> What I did before getting my margin loan with Commsec was I took my list of shares that I own, and figured out which of them Commsec have as accepted shares, put the % of borrowing against each share, threw out ones that they don't accept. and then Transferred across the LOWEST % value. That way I'm hopefully staying as far awar form a margin call as possible.




Sorry Santob, not 100% sure on this could you elaborate.
 For instance if I took out a margin loan of $20000. I had $7000 of BHP and $3000 of WES(current market position), and I wanted to gear these up to $10,000 each. So all up using $10000 of the margin loan. Do they calculate the LVR relative to my whole portfolio, or just relative to the actual security.

So say WES had an LVR of 70%, if the share price dropped at all I would suffer a margin call? Or would they say that I have only used 50% of my total margin loan(20000), so the extra 10000 would act as a buffer?

Cheers,


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## Pager (18 June 2008)

Anyone looking to get a Margin loan or pre pay interest should shop around as rates seem to have come down the last few days, i was getting quoted 10.05% last week at best but this week Ive been offered 9.55% with one of the same lenders.

Macquarie have 9.45% but you have to open an account with the Prime facility, its not bad by all accounts.

the highest rates are with the likes of BT and Commsec, both these aren't very flexible with rates i found, surprising as they are 2 of the bigger lenders.

I have stayed away from small lenders after whats gone on this year and gone with Citibank at the above rate.


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## Junior (18 June 2008)

*Re: Margin loans*



Eddyl said:


> Sorry Santob, not 100% sure on this could you elaborate.
> For instance if I took out a margin loan of $20000. I had $7000 of BHP and $3000 of WES(current market position), and I wanted to gear these up to $10,000 each. So all up using $10000 of the margin loan. Do they calculate the LVR relative to my whole portfolio, or just relative to the actual security.
> 
> So say WES had an LVR of 70%, if the share price dropped at all I would suffer a margin call? Or would they say that I have only used 50% of my total margin loan(20000), so the extra 10000 would act as a buffer?
> ...




In that situation, assuming the LVR on all your stocks is 70% and your buffer is 10% it would be:

Shares - Market Value   $20,000
Loan Limit                   $14,000  70%
Loan Balance               $10,000  50%

Your portfolio would need to drop in value by 35% before a margin call is triggered.


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## dazers (6 July 2008)

*Another margin loan question*

Hello,
Can anyone answer my question regarding the initial cash or shares required as security for the establishment of a margin loan: 
Once the loan is established and becomes like a flexible line of credit, can I remove the initial cash or sell the initial share security and still have the margin loan sitting there?


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## Tysonboss1 (6 July 2008)

*Re: Another margin loan question*



dazers said:


> Hello,
> Can anyone answer my question regarding the initial cash or shares required as security for the establishment of a margin loan:
> Once the loan is established and becomes like a flexible line of credit, can I remove the initial cash or sell the initial share security and still have the margin loan sitting there?





A margin loan operates as sort of a floating line of credit,

you need to provide some shares as security to get it started, if you take security away then the amount you can borrow drops,


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## merman (14 October 2011)

*Margin Loan Query*

Just wondering about the following situation and any thoughts people may have.

Suppose I took out a margin loan of 100k and bought 100k of BHP shares. If the next day I sold the 100k of BHP shares (they didn't gain or lose value in this time).

I then place the 100k from the sale of BHP shares into my mortgage instead of the margin loan.

Am I still able to claim a tax deduction on my margin loan if a just keep making the interest payments?


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## skc (14 October 2011)

*Re: Margin Loan Query*



merman said:


> Just wondering about the following situation and any thoughts people may have.
> 
> Suppose I took out a margin loan of 100k and bought 100k of BHP shares. If the next day I sold the 100k of BHP shares (they didn't gain or lose value in this time).
> 
> ...




Most margin loans are "linked" to your stock holding and have a LVR (loan valuation ratio). So for example the LVR for BHP may be 60%, which means they lend you 60% (the loan) against the valuation of your holding. 

You can't borrow 100%, and you certainly can't sell your shares and still have the loan outstanding. 

If that's the case then it's like an un-secured loan and the interest rate would not be the same as a BHP margin loan.


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## StumpyPhantom (20 May 2012)

*Re: Margin loans*



prawn_86 said:


> If your a beginner (which you have said you are), i would STRONGLY recommend you just using normal cash without leverage for the first year or so.
> 
> That way if anything unexpected happens you are shielded.
> 
> Learn to walk before you can run etc etc




+100

In a dramatically falling market like this one, you're not just catching a falling knife, you're catching a dozen of them.

I read a report recently (Commsec, I think) about margin loans increasing significantly.  This perceived 'easy money' is going to burn a lot of novices.


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## Judd (22 May 2012)

*Re: Margin loans*



StumpyPhantom said:


> .........I read a report recently (Commsec, I think) about margin loans increasing significantly.  This perceived 'easy money' is going to burn a lot of novices...




Happens all the time when those that "know" what they are doing go and do it.  Has been the same since Chris Corrigan introduced margin loans to Australia at the time he was managing director of BT Australia.

I've run out of sympathy pills so I wont be shedding any tears about their investment life stories if it all goes pear shaped for them.


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## tech/a (22 May 2012)

*Re: Margin loans*



Judd said:


> Happens all the time when those that "know" what they are doing go and do it.  Has been the same since Chris Corrigan introduced margin loans to Australia at the time he was managing director of BT Australia.
> 
> I've run out of sympathy pills so I wont be shedding any tears about their investment life stories if it all goes pear shaped for them.




Rather than fear it they should learn how to use it to their advantage.
Leverage is a powerful partner


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## StumpyPhantom (22 May 2012)

*Re: Margin loans*



tech/a said:


> Rather than fear it they should learn how to use it to their advantage.
> Leverage is a powerful partner




...when we're in a bull market....


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## tech/a (23 May 2012)

*Re: Margin loans*



StumpyPhantom said:


> ...when we're in a bull market....




If that comment were true that would be the case for all trading---leveraged or not.
I prefer



> When your on the right side of a trade.




Any idiot can make a buck in a bull market.


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## Tyler Durden (10 June 2012)

I don't know much about margin loans, but my current thinking is this:

say I have $10,000 in cash. I take out a margin loan of $10,000 to buy shares. That way, any interest on the margin loan is deductible, and if things go very pear shaped, then I can always bail myself out by using my cash to pay for the margin loan, no?

So the benefit from the above situation is that the interest is deductible, as opposed to if I had used my own money?


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## Junior (11 June 2012)

Tyler Durden said:


> I don't know much about margin loans, but my current thinking is this:
> 
> say I have $10,000 in cash. I take out a margin loan of $10,000 to buy shares. That way, any interest on the margin loan is deductible, and if things go very pear shaped, then I can always bail myself out by using my cash to pay for the margin loan, no?
> 
> So the benefit from the above situation is that the interest is deductible, as opposed to if I had used my own money?




The interest is deductible, but that doesn't make it free...you still have to pay the interest.  If you're on the 30% marginal tax rate for example, it's effectively like a 30% discount on the interest.  So you still incur 70% of the cost after allowing for the tax advantage.

The main benefit of the margin loan is leverage, although you only have $10,000 equity, add that to a margin loan of $10,000 and you can invest $20,000.  The downside is increased risk of magnifying your losses, and risk of margin call.


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## Garpal Gumnut (11 June 2012)

This is an excellent thread.

I can give you my experience this financial year. I took out a margin loan of $40,000, and paid something over $3000 prepaid interest in late June 2011. 

I prepaid the interest for 12 mo. , and had some capital in the account. Don't ask for exact figures. This has all been calculated on the back of a cohiba box, and is as happened. 

I didn't make a trade for 5 months and then bought AMP. I waited for the divi, and sold in March when it came back to my buy price.

I didn't trade again until Feb 12, and then aggressively bought and sold , WBC, SWM, TEL, PRR, HZN, PEN, OST, CSL, and FMG ( by far the best trading stock ) and made mostly small gains <$500, a few big gains and some small losses as I was particularly tight with my stops.

SWM was good to me, I must be the only bloke to be able to say that this year. I lost significantly on OST.

According to my figures I made capital gains of about $4000 no more no less give or take a few hundred. Divis were about  $5-700 some ff some not as I got out to preserve capital on some of them.

It was bloody hard work and I don't reckon it was worth it.

I am in cash now on my margin account.

As tech/a said, any fool can make money in a bull market.

Is a margin loan worth it?  It depends.

If a bull market is around the corner you will make heaps.

If it is like the last 12 months you will spend a lot of time and money, making a small profit, or if you are a buy and hold of "safe stocks" you will lose your knickers. 

It was a good experience all the same.

Do not just do it for tax reasons.

gg


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