Margin Loan questions

[shogun]

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.

 

[Viginti]

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

 

[shogun]

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

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).

 

[CATAPILLAR]

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

 

[shogun]

Re: Margin Loans

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).

 

[CATAPILLAR]

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

 

[Struzball]

Re: Margin Loans

amen

 

[ROE]

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

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%

 

[Dezza]

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.

 

[white_goodman]

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

 

[prawn_86]

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

 

[white_goodman]

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

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...

 

[Joe Blow]

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.

 

[white_goodman]

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

 

[Santob]

Re: 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

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.

 

[white_goodman]

Re: Margin loans

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?

 

[tech/a]

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.

 

[Santob]

Re: Margin loans

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.

 

[Tysonboss1]

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

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.

 

[Macquack]

Re: Margin Loans

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)