Margin Loans

[rick James]

Am considering this mkehtod for my first real investment. I've got a few grand together, and have a high disposable income to contribute a fair chunk to this every month.

Anyone else have one of these? Previous experience?

 

[Free Willy]

Am considering this mkehtod for my first real investment. I've got a few grand together, and have a high disposable income to contribute a fair chunk to this every month.

Anyone else have one of these? Previous experience?

Is this type of loan similar to investment type "interest only" loans ?

This is working quite well for me & after my first year of negative gearing the benefits are & have been well worthwhile.

It is an inner city property, but aparently these type of loans also can work very well with a share portfolio.

 

[crudbucket]

Am considering this mkehtod for my first real investment. I've got a few grand together, and have a high disposable income to contribute a fair chunk to this every month.

Anyone else have one of these? Previous experience?

They work well, but make sure you get some professional advice about which shares or Trusts you stick your hard earned into.

 

[morgoth]

Rick

They work well in a rising market but you must avoid the temptation to gear to the limit (unless you can get your hands onto a ready source of cash). Try and stay at around 50% as the biggest destroyer of wealth is a margin call.

I know a fiar bit about them so feel free to ask.

 

[rick James]

They work well, but make sure you get some professional advice about which shares or Trusts you stick your hard earned into.

I'm lucky enough to be working in the right industry for it, coupling it with my own study as well.

I'll get a discount on the interest rate as well, I'm thinking of going pretty much exclusively shares, I'm fairly young and want to basically start up a loan where I'd contribute about $500 a month of my own hard earned, then look at withdrawing/reviewing it in about 6 or 7 years to potentially purchase a home.

What kind of initial deposit did you use with yours? I'm really only looking at starting with about $3k and contributing $6k a year of my own, plus the amount from the loan each year. does that sound workable to you?

 

[bunsen burner]

Who do you work for Rick?

 

[rick James]

A financial planner

 

[morgoth]

Are you using listed shares or managed funds? If managed funds a number of margin providers have set plans utilising managed funds whereby as you contribure the loan increase in proportion.

 

[FIGJAM]

A financial planner

Financial panther?!?!?!?!?!?!!!

 

[rick James]

Financial panther?!?!?!?!?!?!!!

lol...

Morgoth, I'm thinking of a mix of both shares and managed funds, and do the thing, forget what its called, where for every say $500 i contribute each month, the bank will chuck in $1000

 

[1jasonoz]

I have a Margin Loan through BT(had it for 20 months). I repay enough to cover the interest each month(which is 100% tax deductable at the end of the financial year), and put my direct shares onto dividend reinvestment plans, so my loan doesnt increase, but the value of the shares does with the dividends being paid.

Keep at a % rate that you can handle, Morgoth said 50%, i'm a little more growth/risk orientated and sit around 60%(but each to their own), with a maxiumum loan ratio of 75%, and a 10% buffer, which lets me go to 85%.

 

[rick James]

what's your growth been like? Are you a young bloke like myself, or an older investor? Would you recommend it? *I know it's not proper financial advice or whatever and you arent PS146 compliant blah blah*

I'm really planning on making it a very long term investment, maybe even up to a decade.

 

[bunsen burner]

A few years ago I was working for a financial institution in their It dept. There was a bad day on the market due to some unforseen world catastrophe (ie a hurricane or something) and sh itloads of customers went into margin call. So many that the usual switchboard plebs couldn't handle the workload. I found myself one afternoon calling clients and informing them of the margin call and that they had to come up with various amounts of money within 24hrs to cover the loan. Some people had to come up with large amounts like $20k.

Whilst I was working for this company I had a look into the pros and cons of margin lending and decided that if I were going to negative gear or borrow to invest then I'd rather do it on property. No margin calls.

 

[rick James]

A few years ago I was working for a financial institution in their It dept. There was a bad day on the market due to some unforseen world catastrophe (ie a hurricane or something) and sh itloads of customers went into margin call. So many that the usual switchboard plebs couldn't handle the workload. I found myself one afternoon calling clients and informing them of the margin call and that they had to come up with various amounts of money within 24hrs to cover the loan. Some people had to come up with large amounts like $20k.

Whilst I was working for this company I had a look into the pros and cons of margin lending and decided that if I were going to negative gear or borrow to invest then I'd rather do it on property. No margin calls.

A lot of that can be covered slightly by having other savings or keeping the percentage low. I'm not looking to get into property atm, shares seem to do better long term if you don't have a huge amount of money to invest

 

[1jasonoz]

what's your growth been like? Are you a young bloke like myself, or an older investor? Would you recommend it? *I know it's not proper financial advice or whatever and you arent PS146 compliant blah blah*

I'm really planning on making it a very long term investment, maybe even up to a decade.

Im up about 950% in 20 months(no thats not a spelling mistake).

 

[rick James]

serious?

I take it you've done some research on a particular fund/share and haven't diversified too much?

that is impressive.

 

[Ghostwriter]

We're almost at the stage of the bell boy giving financial tips, almost but not quite.

 

[1jasonoz]

serious?

I take it you've done some research on a particular fund/share and haven't diversified too much?

that is impressive.

Differsified into various direct shares.

My first buy was ALH(Australian Leisure and Hospitality), which went from $2.20 to $3.20 in 6 weeks after a bidding war between Coles and Woolworths erupted. Sold out and bought heavily into Infrastructure before they became the flavour of the month/year.

Had been into a Global resource fund CFS, but sold out and decided to go direct shares instead.

Also have found that a problem with some Margin Lenders is that they will not lend against certain shares as they either don't have any research on the company, or beleive its to risking and will not lend any more;

eg Consolidated Minerals is one i tried to buy heavily at $1.20; BT had decided that the company was at record price levels and wouldn't lend any money to its clients for this company. The result is that 2 months after i tried to throw 30k into them, they went from $1.20 to sitting at $4.50 mark now 15 months later.

Carefull research will help you, and i find an area that really interests you, mine is infrastructure, and have really researched the areas i have invested in.

Oh and never invest on tips and hearsay; or from websites , its your money you will lose, not theirs.

 

[rick James]

Oh, no doubt I'll be getting professional advice, but I want to have some direction in the matter as well. Thanks for the info.

 

[Borscht Mat]

I would not recommend it. Gearing any investment is simply magnifies your exposures to both the ups and downs of the market. Great on the ups not so great on the downs. It is fine if you are prepared to lose your entire savings in the event of say a 20% decline in the market. If you are prepared to lose this on the downside then gearing is useful.....but you might as well look into derivatives etc which deliver the same exposure faster.

Also I think 950% is not impressive at all (no offence). "The Market" does not deliver those sorts of returns through investing.....it does through speculating. But speculating the sharemarket is no different from speculating at crown casino.

 

[1jasonoz]

Also I think 950% is not impressive at all (no offence). "The Market" does not deliver those sorts of returns through investing.....it does through speculating. But speculating the sharemarket is no different from speculating at crown casino.

Speculating far from it, all long term safe companies.

All of my shares have been blue chip, semi blue chip, paying dividends with low P/E. ANZ a return of 33% in 12 months (had it for 12 months and still hold ANZ), ALH Australias biggest pub operator up 33% in 6 weeks (sold out and bought Woolworths at $11.45, are above $16 15 months later), Westpac up from below $17 18 months ago, to $21.26 at present (and i still hold this share, never sold it), plus a fully franked dividend. AIX (Australia Infrastructure Fund, my darling share and very long term play), up from $1.40 to $2.40 now, plus a 5% dividend.

There can be some very good returns made in the stockmarket, and you don't have to specualte on penny dreadfulls, or dotcom companies to make them.

Oh and tell me to many investments that will return 950% in about 20 months.

 

[Borscht Mat]

Speculating far from it, all long term safe companies.

All of my shares have been blue chip, semi blue chip, paying dividends with low P/E. ANZ a return of 33% in 12 months (had it for 12 months and still hold ANZ), ALH Australias biggest pub operator up 33% in 6 weeks (sold out and bought Woolworths at $11.45, are above $16 15 months later), Westpac up from below $17 18 months ago, to $21.26 at present (and i still hold this share, never sold it), plus a fully franked dividend. AIX (Australia Infrastructure Fund, my darling share and very long term play), up from $1.40 to $2.40 now, plus a 5% dividend.

There can be some very good returns made in the stockmarket, and you don't have to specualte on penny dreadfulls, or dotcom companies to make them.

Oh and tell me to many investments that will return 950% in about 20 months.

I am not having a go, good luck to you. But let's look at what you have quoted.

Woolworths 11.45 - 16.00 in 1.25 years = 32% p.a. appx
even AIX 1.40-2.40 = 71%
ANZ 33%

not too shabby at all, and even these I would say are not "real" investment returns....but be that as it may it is a long way from 32% or even 70% to 950%. You are talking about turning say $10,000 into $100,000 in 20 months. That is possible but only through speculating....either through penny stocks which is really just gambling or through high gearing, which is exposed on the downside and therefore also in the realms of speculating.

The best piece of advice I ever got was a one page table which had the compounding return from the sharemarket for a $1,000 invested where you invest in any given year and "withdraw" in any other given year (1,2,3....25 years later). Once you got past say a 3 year investment the compounding return was remarkable stable over a 50 year period.....it was always between 11 & 13% p.a. So this is the "normal" return from the market, and most investors will therefore cluster around this over a long period of time. Of course there will be people who average say 20% over 5 years, but then there are people (often the same people 5 years later) who average 3%.

Returns like 950% are offset by the times when you buy at $1.40 will all good intentions and 6 weeks later the company goes out the door backwards and you lose the lot.

I have been investing for more than 15 years and I have learnt the following:

1. people are ever so keen to tell you about their successes and strangely quiet about their failures

2. over a long enough period of time the swings and round-abouts bring any diversified portfolio back to around the mean of the market.

3. non-diversified portfolios can differ from the market (on the upside or the downside) but this needs to be measured over the course of the cycle. Everyone made money in the dot-com boom....and almost everyone lost that and then some when it all felll away.

 

[1jasonoz]

I am not having a go, good luck to you. But let's look at what you have quoted.

Woolworths 11.45 - 16.00 in 1.25 years = 32% p.a. appx
even AIX 1.40-2.40 = 71%
ANZ 33%

not too shabby at all, and even these I would say are not "real" investment returns....but be that as it may it is a long way from 32% or even 70% to 950%. You are talking about turning say $10,000 into $100,000 in 20 months. That is possible but only through speculating....either through penny stocks which is really just gambling or through high gearing, which is exposed on the downside and therefore also in the realms of speculating.


Returns like 950% are offset by the times when you buy at $1.40 will all good intentions and 6 weeks later the company goes out the door backwards and you lose the lot.

.

Can i just get this right, you inititally stated that i couldn't have been investing by gaining such a return, speculating on the penniey dreadfulls you think. I then come back and show you SOME of the shares i have acheived my return in 20 months with. All Blue chip/semi Blue chip shares like Banks/infrastructure, and your response is that "even these I would say are not "real" investment returns". Why do you say that, Banks have averaged between 19-22% per annum over the last 10 years. Infrastructure is the new up and coming area, retail returns from Woolies are going great guns, and have so for 10+ years.. If my returns from these Blue chip companies are not real returns, then what is?

Heres another one of mine, Caltex was sitting below $10 about 8 months age, sitting over $22 now. Thats over 100% in 8 months, how is investing in Caltex a oil company speculating when the oil price has gone through the roof? If you'd invested $10,000 in Caltex 3 4 years ago, that $10,000 would be worth over $100,000 now. Caltex is not a penny dreadful, it has a market capitailisation of almost $6 billion.

How is it specualting on Banks who are returning between 19-22% per annum speculating. How is investing in the biggest retailor sepulacting.

The smallest company i have invested in, is AIX, which is now worth about $900 million, and is alomst debt free.

The one thing i don't do, is invest in small penny dreadfull companies, and i don't go into dot com companies like alot of lemmings did.

 

[Borscht Mat]

Can i just get this right, you inititally stated that i couldn't have been investing by gaining such a return, speculating on the penniey dreadfulls you think. I then come back and show you SOME of the shares i have acheived my return in 20 months with. All Blue chip/semi Blue chip shares like Banks/infrastructure, and your response is that "even these I would say are not "real" investment returns". Why do you say that, Banks have averaged between 19-22% per annum over the last 10 years. Infrastructure is the new up and coming area, retail returns from Woolies are going great guns, and have so for 10+ years.. If my returns from these Blue chip companies are not real returns, then what is?

Heres another one of mine, Caltex was sitting below $10 about 8 months age, sitting over $22 now. Thats over 100% in 8 months, how is investing in Caltex a oil company speculating when the oil price has gone through the roof? If you'd invested $10,000 in Caltex 3 4 years ago, that $10,000 would be worth over $100,000 now. Caltex is not a penny dreadful, it has a market capitailisation of almost $6 billion.

How is it specualting on Banks who are returning between 19-22% per annum speculating. How is investing in the biggest retailor sepulacting.

The smallest company i have invested in, is AIX, which is now worth about $900 million, and is alomst debt free.

The one thing i don't do, is invest in small penny dreadfull companies, and i don't go into dot com companies like alot of lemmings did.

investing in a bank returning 20% is not speculating (although you don't have to go back too far to find banks going backwards). I just don't see how that 20% translated into a 950% return ?

950% in 20 months is speculating.

20% is a high return, not speculating, but also needs to be taken over the swings and round-a-bouts.

So.....my only point is that 950% in 20 months is speculative (great but just lucky)....20%, 30% is excellent but not unusual. Mind you if you had invested in the Index it has returned 22% in 12 months and 18% p.a. for the past 3 years....so that is the benchmark.

None of it adds up to 950% though

 

[1jasonoz]

investing in a bank returning 20% is not speculating (although you don't have to go back too far to find banks going backwards). I just don't see how that 20% translated into a 950% return ?

950% in 20 months is speculating.

20% is a high return, not speculating, but also needs to be taken over the swings and round-a-bouts.

So.....my only point is that 950% in 20 months is speculative (great but just lucky)....20%, 30% is excellent but not unusual. Mind you if you had invested in the Index it has returned 22% in 12 months and 18% p.a. for the past 3 years....so that is the benchmark.

None of it adds up to 950% though

Did you miss this;

Heres another one of mine, Caltex was sitting below $10 about 8 months age, sitting over $22 now. Thats over 100% in 8 months, how is investing in Caltex a oil company speculating when the oil price has gone through the roof? If you'd invested $10,000 in Caltex 3 4 years ago, that $10,000 would be worth over $100,000 now. Caltex is not a penny dreadful, it has a market capitailisation of almost $6 billion.

I just don't see how that 20% translated into a 950% return ?

Who said 20% translated into a 950% return, i didn't??? I gave you examples of some blue chip shares that i have owned , that most people don't look at as being for growth, but in actual fact have been returning well in excess of any dotcom company could(that being the banks in the particular example i gave of an average of 20% per annum from ONE share). ANZ up 33% in 12 months, Westpac up over 20% in 12 months, Caltex up over 100% in 8 months(its actually up by around 140%), etc.

Youve said this twice in this thread alone;

950% in 20 months is speculating.

So.....my only point is that 950% in 20 months is speculative

Is it more a case that you have spent 15 years of investing, and are happy to just try and achieve the benchmark returns, and can't work out how someone can get a better return than you have achieved?

Oh and i think you would have picked up this bit, do i expect to acheive a 950% return on the sharemarket every 2 years, NO. Do i beleive that this is normal return for an investor NO. How did i acheive this return, by following Buffetts rules and investing in underpriced companies, that have good company structures, i.e in growth areas, hence me buying heavy in Infrastructure before the average sharemarket leemings realised it was a good place to invest. By buying in comapnies that had good fundamentals, like low P/E, low liabilities, low BETA, high dividend yield, good cash flow etc.

I made the return i did, by buying in early when these companies where underpriced, until the stockmarket leemings woke up one morning and decided that they needed to buy them. If i had the time id tell you my story about MtGibson Mines in Geraldton WA.