Registered Members Login:
   
Forgotten Your Details? Click Here To Recover +
Welcome To The ShareCafe Community - Talk Shares And Take Stock With Smart Investors - New Here? Click To Register >

9 Pages (Click to Jump) V   1 2 3 4 > »    
 
  
Reply to this topic

BORROWING & GEARING, Discussion of Pros & Cons
jaded
post Posted: Mar 24 2008, 05:22 AM
  Quote Post


Posts: 1,085
Thanks: 2


http://www.theaustralian.news.com.au/story...454-643,00.html

 
rozella
post Posted: Apr 1 2005, 02:14 PM
  Quote Post


Posts: 1,241
Thanks: 14


In reply to: Fraz on Friday 01/04/05 03:02pm

QUOTE
I'm looking at changing margin loan over to HSBC - but they don't let you pay the interest each month or set up any direct debit arrangements to pay it - it has to be added to the loan balance.


Fraz,

They would not prevent you from putting new capital into the margin loan on a regular basis, so then you can call it interest payments in your own accounts.....but personally I think it is better to capitalise the interest to the loan if you are making more % than the interest p.a.

rozella

 
Fraz
post Posted: Apr 1 2005, 02:02 PM
  Quote Post


Posts: 36
Thanks: 2


I posted this on the "Tax questions" board - reposting here - bit more relevant....

Question re deductability of compounded interest on a personal investment / margin loan.

If you have a margin loan and each month compound the interest charge onto the loan (rather than actually pay it) is it still tax deductable?

My reading of ATO guidance is "if you incur an expense" - do you incur it if you don't actually pay it?

I'm looking at changing margin loan over to HSBC - but they don't let you pay the interest each month or set up any direct debit arrangements to pay it - it has to be added to the loan balance.

The next problem then is that this compounded interest then itself starts incurring interest - is the interest incurred on interest charge deductable?? If not it would be pretty hard to work out the porportion of the loan that is not deductable...

and

I just recall many years ago hearing that you couldn't (claim a deduction for interest on interest) as the interest on interest didn't meet the 'purpose of the loan' test. ie interest is deductable if loan funds used to procure an income producing asset. -> Taking out a (small) loan to pay interest costs (which is essentialy what you are doing by capitalising the interest) doesn't meet that purpose.

hence I always "did the right thing and paid my interest". It will certainly help my cashflow being able to capitalise it...(although noting it does increase my LVR each time th interest is added)


Fraz

 
Fraz
post Posted: Apr 1 2005, 12:52 PM
  Quote Post


Posts: 36
Thanks: 2


Pengo and all others 'considering' getting a Margin Loan

I reckon the best way to learn this is to just go ahead an open a basic ML account (eg through an on-line broker like COMSEC). Once the account is open, you can look at the account on-line and you'll soon see how they calculate it all, and how individual stock LVRs affect the total LVR.

(I'm assuming you have some shares already that you'll be putting in as security on the loan - if you don't, then you're probably not at the stage of understanding the sharemarket to consider a ML for direct share investments, or you should try one of the 'regular gearing' products ie margin loan dripping into into managed funds - again this will show you how it works to a similar degree).

Also by putting your own shares in, and opening the account, you don't have to start buying straight away with margin funds, so there will be no immediate danger of a margin call, while you get a feel for how it works. Unless you living in the buffer zone, it takes a pretty decent (and sudden) fall to trigger a margin call - I first open a ML about 2 months before 9/11, was about 50% geared and didn't get a call - but I was sweating it a bit that day. I used to keep mine in the buffer zone and also never got a call; esp. leading up to Mar 03 - but since then, with this damn rally since then, I can't buy stocks quick enough to get back in the buffer zone! lmaosmiley.gif


Another post to follow...

Fraz

 
rozella
post Posted: Mar 31 2005, 03:41 PM
  Quote Post


Posts: 1,241
Thanks: 14


In reply to: pengo on Thursday 31/03/05 04:17pm

If your want to put $3000 of your own capital to buy say TLS (which is 511.0 atm)
LVR is 75%

3000 divided by 0.25 = 12000 this would be how much you could buy

12000 divided by 5.11 = qty of 2348

Do a spreadsheet & it will tell you your position every time you update the price, something similar to the one on my website.

rozella

 
pengo
post Posted: Mar 31 2005, 03:17 PM
  Quote Post


Posts: 306


Hey just another quick one smile.gif

How do i work out how much I can borrow based on how much of my own capital I use?

Do I have to work out what my portfolio's leverage is? If so how do I calculate that, do I total up all the various LVR values and average it?



 


rozella
post Posted: Mar 30 2005, 07:43 PM
  Quote Post


Posts: 1,241
Thanks: 14


In reply to: pengo on Wednesday 30/03/05 06:25pm

QUOTE
In anycase I still need to do some more research, tho i appreciate all the help. Still not confident atm to take the leap  Still I have time on myside, I'm quite young.

Good idea. It would also be a good idea to paper trade a portfolio with marginlending using end of day data, so you can see the effect fluctuations in the market make. It takes a while to know the ropes, but when you do, you feel cheated if you are not using marginlending.

I operate in the buffer zone most of the time & still have not had a margin call. If you do have a call then it is for your own good as you should have sold the problem & moved on.

You said you would use a 7% stoploss (this is a lot), so if you are willing to do this it won't work with $100k portfolio using $25k of your own.....even a 3% stoploss it is too hard, besides there are not enough stocks with 75% LVR with most marginlenders, the majority are 70%. Once you can find a winning strategy using paper trading, then if you start with a margin loan, keep the gearing down, even to 50% then gradually work your way up.

QUOTE
Also with past decline in the all ords, I'll be checking your site to see how you faired! With the recent fall in the all ords did you get any margin calls or since you stuck to your stop loss of 3% were you never got a margin call?

Yes we took a hit like everyone, but sold when the stoploss was hit. Today we finally stopped the rot & were up $816......no margin calls. Incidently the website is based on end of day data using a stoploss of 3%

rozella

 
pengo
post Posted: Mar 30 2005, 05:25 PM
  Quote Post


Posts: 306


QUOTE (rozella @ Wednesday 30/03/05 04:34pm)

ok

So after opening all of my positions, if my portfolio drops by 5% in value I'll have to throw money at my margin loan by buying more stocks on the market, selling stocks or deposit the differance of the drop to the 5%/10% buffer into my margin loan account?

Anyway as they keep preaching, diversification is the key. So if its a 5%/10% buffer in total portfolio value, I should be able to leverage myself 100% without too much of a concern. So long as I keep to my stop losses, weight my portfolio correctly and diversify right? smile.gif So hopefully like yourself i'll be sheilded from any loses that could incurr the wrath of a margin call.

By the way in your example you used 25k of own capital and borrowed 52k~ and said this is the maximum. As in my previous posts i'm interested in establishing a portfolio worth 100k so I can get a decent level of exposure across a portfolio of 10-15 stocks, with 25k of my own money is this not possible? I guess it all depends on the the LVR rates on whatever stocks I'm interested in if this 100k portfolio figure is possible with only having to use 25k of my own money? I guess to be able to setup a portfolio worth 100k I need more than one stock due to the various levels of LVR? I guess thats not so bad as improves the oppurtunity to be able to diversify.

Also with past decline in the all ords, I'll be checking your site to see how you faired! With the recent fall in the all ords did you get any margin calls or since you stuck to your stop loss of 3% were you never got a margin call?

The only concern I have is that I work full-time and well I won't be trading in and out of stocks like yourself. As stated I'm in it for the medium to long term (3-5 years). So I don't think a stop loss of 3% will be realistic for me since I can't be as dedicated as yourself to monitor my portfolio due to work committments sad.gif. So I can weather any moderate fluctuations in prices in the short term I am looking at a stop loss of 7%. And then use a trailing stop loss in the medium term to preserve any capital gains.

In anycase I still need to do some more research, tho i appreciate all the help. Still not confident atm to take the leap smile.gif Still I have time on myside, I'm quite young.

 
rozella
post Posted: Mar 30 2005, 04:34 PM
  Quote Post


Posts: 1,241
Thanks: 14


G'day pengo,

Take an example: using your own capital of say $25000

1000 CBA @ $34.75 = 34750 LVR 75% can borrow 28312.50
4000 PMN @ $4.84 = 19360 LVR 70% can borrow 13552.00
3000 CDO @ $5.90 = 17700 LVR 60% can borrow 10620.00

total purchases = $71810.00
margin value of security = $52484.50 this is the maximum. your capital 19325.50
credit available = 25000.00 - 19325.50 = 5674.50

After your credit available is used, your 5% buffer would be $71810 x 0.05 = $3590.50 so if you go over this amount you will receive a margin call. The marginlender sets the buffer, some are 5% & some 10%.

The margin call is not on individual stocks unless you only owned one, it is on the average LVR of the total portfolio.

I usually operate with 10 to 15 stocks with no one stockholding of more than 15%, & use a stoploss of 3% on each stock, there the most I can lose (strictly using these rules) is 0.45% of total portfolio per 15% stock....hope that makes sense.

Have a look at the margin loan I have on my website, under Margin Trading 2 on the menu . exdividendwatchlist

You will see the current stockholdings & the transactions under. Atm is uptodate as of 29th March & while the market is volatile I am updating each night to show what happens.

Ask any questions & I will try & answer.

rozella





 
Joska
post Posted: Mar 30 2005, 03:27 PM
  Quote Post


Posts: 2


All depends on how much security you have.

LVR of Portfolio i.e. security value is calculated by multiplying each stock value by its LVR and aggregating for all stocks. Amount borrowed must be less than this or you have a margin call.



 
 


9 Pages (Click to Jump) V   1 2 3 4 > » 

Back To Top Of Page
Reply to this topic


You agree through the use of ShareCafe, that you understand and accept the TERMS OF USE.


TERMS OF USE  -  CONTACT ADMIN  -  ADVERTISING