Sustainable Conservative Margin Loan LVR

[ENP]

I've recently been researching all I can get my hands on regarding margin loans. Searching these forums, Google, brokers info packs, etc.

No where does it say what is a sustainable LVR/gearing level to have for the mid-long term buy and hold investor.

I'm thinking anywhere over 50% loans are getting pretty risky and anything under 20% doesn't seem even worthwhile having it, so somewhere in between is a happy medium.

I've done worst case scenarios on excel and have figured out the below calculations. This would consider a 70% LVR available by brokers, causing a margin call. The below would be how far the stock(s) would have to fall to trigger an LVR over 70%

- If I borrowed 40% and had my own 60% a drop of 43% of the share price would trigger a margin call

- 30% borrowed, 70% my own would need a 58% drop to trigger

- 25% borrowed, 75% my own, would need 65% drop in share price

So looking at that, I'd say 30% borrowings would be ideal?

Thoughts?

 

[ENP]

Also, after time while having the margin loan, I would be saving from my day job each paycheck and putting it into paying back the loan or buying more shares, how does one go about re balancing the LVR if the shares go up or down? Do you contact the broker and ask them to increase or decease the loan?

 

[KurwaJegoMac]

- If I borrowed 40% and had my own 60% a drop of 43% of the share price would trigger a margin call

- 30% borrowed, 70% my own would need a 58% drop to trigger

- 25% borrowed, 75% my own, would need 65% drop in share price

So looking at that, I'd say 30% borrowings would be ideal?

Thoughts?

I'd say it depends on how much you're willing to let it drop by because for me, a 58% drop would be catastrophic - granted I'm a trader but even a 'buy and holder' shouldn't be allowing for such a large drop. A 58% drop means >100% gain just to break even.

Are you willing to let your buy-and-hold drop 58%? What's an acceptable level for you?

Perhaps you could look back over the past 100 years and determine the biggest % drop over any time period and then tcompare it to your results above?

 

[ENP]

http://www.youtube.com/watch?v=3XlBrohrIUc&feature=results_main&playnext=1&list=PLCD8FE8DC60AD430E

See the first minute of that video.

50% would be acceptable for me. It's long term, not get rich quick.

 

[Logique]

ENP,
margin loan priorities (for a long term strategy) are to
1. Select quality stocks, at the right price
2. Loan repayment levels that you can afford
3. LVR that leaves you with a comfortable buffer

I think 30% LVR is a reasonable upper limit for beginners, and depending on the volatility of your portfolio. Perhaps 25% in a volatile market.

So-called 'sophisticated' investors can be comfortable with much higher LVR%, especially if markets are in a bull run.

 

[suhm]

My look through LVR would be about 10-15%, not a lot of what I buy can be used as collateral. I find it more useful so that I can buy stock when new opportunities arise and have a bit more leeway before I cull old positions.