Margin Lending or Equity utilisation

[zzkazu]

What are the thoughts on the use of equity vs Margin Lending to increase a trading position.

I'm full bottle on risk management, but cant really seem to see the benefit of Margin Lending when equity can be used at a lower interest rate; unless for greater exposure leverage by the use of equity.

:goodnight
zzkazu

 

[tech/a]

unless for greater exposure leverage by the use of equity.

:goodnight
zzkazu

Think you've answered your own question.
With the advent of CFD's you can have $200,000 equity use a line of credit and grab $20,000 and trade the full $200,000 without having to put it up initially.

This is certaintly for experienced players only.

 

[zzkazu]

Thanks tech/a for the response. In my situation I have a LOC ~$250K so would the theory still apply? I guess its how much leverage one is comfortable with...

Also I wouldn't be exposed to the margin lending ratios... thats a plus.

zzkazu

 

[tech/a]

This is how I would do it if it was my situation.

If I was considering fully investing $250K in a portfolio and it was locked away in housing equity,I would use a CFD account and put up $25K.Leaving the rest sitting un used.

I certaintly wouldn't leverage the Full 250K thats asking for disaster in my veiw.

In my case I know my drawdowns and am happy with 2.5:1 leverage so thats what I use on Margin/approx.
When I do trade using CFD's thats the Margin I will be comfortable with.
So with CFD's that would be $62.5K up front.

If that went then I would certaintly stop trading as my method would be flawed.(The 62.5K).

 

[money tree]

see tech/a this is why you need good advice.

your approach has serious tax negatives:

1. interest on a home loan is not tax deductable.
2. interest on a margin loan IS tax deductable
3. CFDs have no franking credits and raise further tax problems
4. CFD interest is not tax deductable.
5. CFD interest is higher than a home loan redraw

using a 2.5:1 ratio is inefficient. better to maximise the leverage and use less capital. instalment warrants is one solution which solves all the tax issues (and theres no risk of margin call)

your ignorant attitude towards Financial Advisors is costing you a lot of money (and I feel sorry for those you influence into the same attitude). Tax is optional. How much did you pay last year? A *good* advisor would show you how to make an extra 30k or so a year.....but dont you worry, you just keep bagging em out cos you are soooo superior.

 

[trader]

This wouldn"t be coming from someone with a vested interest.

 

[RodC]

see tech/a this is why you need good advice.

your approach has serious tax negatives:

1. interest on a home loan is not tax deductable.
:

Doesn't this depend on what the funds are used for?

 

[RodC]

What are the thoughts on the use of equity vs Margin Lending to increase a trading position.

I'm full bottle on risk management, but cant really seem to see the benefit of Margin Lending when equity can be used at a lower interest rate; unless for greater exposure leverage by the use of equity.

:goodnight
zzkazu

I guess you're referrring to equity in property.

Maybe I'm old fashioned, but I like to use property equity (via LOC's) for property investment and share equity (via margin loans) for share investment.

Though I have been known to use a small amount of property equity to kick start a share portfolio.

Rod.

 

[GreatPig]

Doesn't this depend on what the funds are used for?

I believe so. From my understanding, what they're secured against is not relevant.

However this is only my understanding, I'm not an accountant and don't have personal experience.

Cheers,
GP

 

[clowboy]

Home equity debt can be tax deductable. If it is used for more than one purpose it can get very complicated and may mean you can't deducted.

If you want to take this path then set up two loans under the one account (ie 2 splits.)


While I am not an accountant etc etc and this is not advice (and you should seek advice) I know this from experience and in fact have a credit card which I have used for investment purposes which is completely tax deductable.

 

[tech/a]

see tech/a this is why you need good advice.

your approach has serious tax negatives:

1. interest on a home loan is not tax deductable.
2. interest on a margin loan IS tax deductable
3. CFDs have no franking credits and raise further tax problems
4. CFD interest is not tax deductable.
5. CFD interest is higher than a home loan redraw

using a 2.5:1 ratio is inefficient. better to maximise the leverage and use less capital. instalment warrants is one solution which solves all the tax issues (and theres no risk of margin call)

your ignorant attitude towards Financial Advisors is costing you a lot of money (and I feel sorry for those you influence into the same attitude). Tax is optional. How much did you pay last year?

hahaha.
Tree.
When you find yourself in the position to be in control of serious money (your own) then I'll listen because by then you'll be practical not hypothetical.

Firstly how does one release the capital gained on equity without selling his house (presuming he has one only).Answer Line of credit.
Sure he will not be able to deduct the 7% on $25,000 a year.

However if he has an IP then he sure can claim the interest component.
The question was what would he do not tax issues.

Now on tax I certainly would not go to a "Financial advisor" to look after my tax and i wouldnt advise anyone else to either.You need an accountant and when you get to my position you need a specialist in Tax law.(I'm looking into CFD trading and from your input will broach tax issues with my tax advisors,who happen to be Crase Consulting in Adelaide).

Most advisors are wanna be sales people we have all met them and you tree may well be one of the few who arent. I dont know.
I do know only one worth his salt in adelaide and thats Glenn Toddman who also writes for the Sunday Mail.I know him personally,he owns an apartment in a group where we also own apartments.I've never talked to Glenn on Financial matters.

Maximising leverage and using less capital is fine but you still have stagnant money sitting there incase of disaster.
Are you advocating trading that which you dont have?

Like everyone I have people looking at minimising my tax liability.I'm at the hands of "experts" every taxbill is bloody annoying. I'm happily un happy.

A *good* advisor would show you how to make an extra 30k or so a year.....but dont you worry, you just keep bagging em out cos you are soooo superior.

As for this rubbish,
Here you have the perfect platform to "ply" your trade.
I have been here a while now and all I've seen is Instalment warrants and an options course.
You appear to have this attitude of why should I give something away when I make a living from it!
My lack of respect for you as a Financial advisor you see as my positioning of one of superiority.Thats your view and not mine with you or anyone here or any other site.

Go buy an Adelaide Sunday Mail and have a look at Toddmans Q&A in the Financial pages this is what you could be doing right here.

You could be a great asset here!

I make no apologies for being Rude,Abrupt, and arrogant,I hate wanna be's particularly the loud obnoxious ones at Parties.

By the way people here know more about my financial holdings than in private life. Why, cause I dont know you and it doesnt matter to you or me.


Stop your whinging.
Show some tangible talent.

 

[MichaelWhyte]

Guys,

Do both, I did!

I had $400K in equity in my house which I pulled out with an LOC. I then put $300K of it up and leveraged it with LE for another $300K to put into the market. So, I've got $600K in there working for me and $100K sitting on the sidelines spare in the LOC still.

My interest charges are a mix of LOC and margin loan so work out at 7.1% pa. Anything above that is profit. Did 6.5% in the last quarter so on track to cover my interest costs pretty quickly for the full year.

Its all about your acceptable risk levels IMHO.

Cheers,
Michael.

PS. Tech/A, love the system. I've signed up to Reefcap and am reading your thread(s) with great interest...

 

[zzkazu]

To put the issue into context.

The equity is from investment properties, as such tax deductable. I have a redraw facility so I can access the monies, or I might transfer it to a LOC. Either way these accounts are purely for investment purposes.

The real question to me is why pay higher interest, be constrainted by margin ratios when equity (investment in this case) can be used to achieve the same outcome without all the constraints.

Have I missed something?

zzkazu

 

[bullmarket]

Hi everyone

oh dear looks like some getting a little upset again, so I'll throw my in for what it's worth.

It never ceases to amaze me how some resort to the old 'mine is bigger than yours' defence when they don't like someone else's view or opinion.

My philosophy is that the vast majority of claims of profits and/or wealth in forums like this are fictitious and are nothing more than an attempt to create an illusion of credibility in the hope that the gullible or less experienced will follow the claimant's buy/sell suggestions when the claimant is actually looking to recover losses from long or short postions. I don't know if any of the claims of profits/wealth are true or not and at the end of the day, how can it possibly matter to me if they are or are not .

Imo, the only ones who feel they have a need to 'advertise' alleged profits/wealth are those who are struggling to create wealth. Where people in a forum like this think I may be on a scale ranging from bankrupt to Bill Gates is of no interest to me at all.

Those who try to big note themselves without providing any verifiable proof to substantiate their claims are simply making fools of themselves, especially in the eyes of those in here who might have even greater wealth than those claimed in here.

The bottom line is that people can pretend to be whoever/whatever they like in a forum like this since they are under no obligation to provide verifiable proof. Hence I choose to not believe any claims of profits/wealth unless someone is prepared to show some guts and provide verifiable proof if they want to be taken seriously.

Anyway, I'll continue to watch with interest and amusement

cheers

bullmarket

 

[RodC]

To put the issue into context.

The equity is from investment properties, as such tax deductable. I have a redraw facility so I can access the monies, or I might transfer it to a LOC. Either way these accounts are purely for investment purposes.

The real question to me is why pay higher interest, be constrainted by margin ratios when equity (investment in this case) can be used to achieve the same outcome without all the constraints.

Have I missed something?

zzkazu

As Michael said above using both can give even greater leverage than just using equity (provided this fits in with your risk profile). Or alternately allows you to leverage to the same overall amount whilst leaving funds available in the LOC for other contingencies or opportunities.

Yes, the interest rates are higher, that's probably a reflection of the banks view of the security provided. The margin ratios aren't really a constraint, they just provide an alternate fundamental assessment of the risk of each stock.

Rod.

 

[MichaelWhyte]

To put the issue into context.

The equity is from investment properties, as such tax deductable.

Guys,

Thought I better point something out here which seems to be recurring and off the mark. It doesn't matter what you use as security, its the "end use" of the money that determines its deductibility or not. So, in my case, my principal place of residence (PPOR) is the security on my LOC, but because I'm "investing" those dollars in the market, the interest on the LOC loan becomes deductible. It doesn't matter that its a loan against my house. Of course, the mortgage on that house remains non-deductible / bad debt.

Cheers,
Michael.

 

[zzkazu]

I also have LOC based on my Primary property, it is tax deductable as I use it soley for investment purposes.

Back onto the Margin Loan, I can conclude as I thought that the main benefit is for those that dont have equity to draw upon or want to increase leverage.

There would be about the same risk exposure (slightly higher interest rates on Margin Loans).

Be happy..

zzkazu

 

[Smurf1976]

Hi everyone

oh dear looks like some getting a little upset again, so I'll throw my in for what it's worth.

It never ceases to amaze me how some resort to the old 'mine is bigger than yours' defence when they don't like someone else's view or opinion.

My philosophy is that the vast majority of claims of profits and/or wealth in forums like this are fictitious and are nothing more than an attempt to create an illusion of credibility in the hope that the gullible or less experienced will follow the claimant's buy/sell suggestions when the claimant is actually looking to recover losses from long or short postions. I don't know if any of the claims of profits/wealth are true or not and at the end of the day, how can it possibly matter to me if they are or are not .

Imo, the only ones who feel they have a need to 'advertise' alleged profits/wealth are those who are struggling to create wealth. Where people in a forum like this think I may be on a scale ranging from bankrupt to Bill Gates is of no interest to me at all.

Those who try to big note themselves without providing any verifiable proof to substantiate their claims are simply making fools of themselves, especially in the eyes of those in here who might have even greater wealth than those claimed in here.

The bottom line is that people can pretend to be whoever/whatever they like in a forum like this since they are under no obligation to provide verifiable proof. Hence I choose to not believe any claims of profits/wealth unless someone is prepared to show some guts and provide verifiable proof if they want to be taken seriously.

Anyway, I'll continue to watch with interest and amusement

cheers

bullmarket

Pay enough attention to someone's posts and in general it is possible to find out if they know their stuff or not. Ask detailed technical questions if need be and verify the answers. Those who merely quote theory or who don't really know the subject collapse in a heap when asked highly specific questions requiring precise answers.

As for the actual argument about tax, it's more important to make a profit in the first place than to worry about how much tax you have to pay on it.

 

[bullmarket]

hi smurf1976

I agree with you and that is what I do if I really need to find out if someone knows their stuff or not as you put it.

But I think you missed the point of my post. All I said was that I choose to not blindly believe unsubstantiated claims of profits and/or wealth, especially in 'anonymous' forums like this - whether they know their 'stuff' or not.

I'm just calling it as I see in my earlier post, with my reasons why, and if people want me to take them seriously re any claims of profits/wealth they make then they will have to provide verifiable information to back up their claims otherwise they're just wasting my time.

But at the end of the day, if their claims are true and they have no other hidden agenda that requires me or anyone else to believe their claims, then I don't see how it can possibly matter to them whether I or anyone else believes them or not. In my experience, only those that have other agendas tend to be aggressive towards those that don't belive them. As I said before, where people think I may be on a scale from bankrupt to Bill Gates is of no interest to me at all.

I hope this makes the point I was making originally clearer.

cheers

bullmarket