Equity protected loans

[Aceyducey]

Qaz,

You'd have to talk to Freeman Fox. They were not all named at the seminar

Cheers,

Aceyducey

 

[DavidPleydell]

The seminar wasn't for giving out tips as such more on how the products work and what you can do with them.

If you want to write calls you already limit the stocks you would buy anyway. If you are doing it for stock picking rather than writing calls then you widen the range. The protected loans may have a list of stocks they allow as well. (I think)

You can probably mix up the portfolio, buy some to write calls against and some for growth. I've never used this product so only a suggestion.

David

 

[House_Keeper]

Was wondering what opinion/experience you have of the capital protected loans some Banks offer for purchasing share portfolios?. The idea sounds good but, interest rates are so high that I don't see how they can be worst it?. I have run some very basic calculations and in the best case scenario one breaks even...



Cheers,
James.

Why pay 14% interest when you can pay 7%? Sure, you get downside protection, but this comes at a steep price. You are unlikely to get high returns from such a strategy.

 

[likewow]

Well actually if you are really justed interested in generating an income stream then the stock selection isn't as important. Just pick high yielding stocks.

Oh I also forgot to mention that the dividends and tax credits have to be taken into account, if they are high and you can get very good premium then the reliance on great stock picking is lessoned. Hence why doing both makes it look a lot better.

I think a good options broker would help here. ie defensive strategies and writing the calls.

David

Right on David, If you're buying for divs you can ignore the share price. Just get a share where the (blue chip) companies fundamentals are sound and stick it in the bottom draw.

As for the protected loans i think its taking the responsibilty away from the investor by protecting the loan and only giving a choice of safe stock but the price you pay for that is average performing portfolio and the way higher interest rate.

Id prefer to back your own research and judgement, pick stocks on your own and pay the low rate on a margin loan or LOC only if you have to. Meaning only borrow to buy shares as a last resort.

 

[The Y-man]

Why pay 14% interest when you can pay 7%? Sure, you get downside protection, but this comes at a steep price. You are unlikely to get high returns from such a strategy.

Hi Housekeeper,

I guess one of the main attractions for this strategy is the level of gearing offered - essentially 100%.

Margin loans (currently @8-9%) allow around 50%-75% gearing (depending on the shares being bought) and are subject to margin calls.

Whilst it is possible to set up you own hedge strategy, you do need to have an options trading account open, and know how to trade them. So the protected lending package offers some convenience.

Keep in mind that the target market for these products probably does not have equity to draw down from a home @7%, are in a high income bracket, with very few deductions.

When I first started in shares, I had very little capital, so I had to take out a personal loan @12%pa to effectively do an unprotected 100% gear on my share portfolio.

Cheers,

The Y-man