margin loan for shares
- Thread starter rodimus
- Start date
Thommo,Thommo said:
Comparing long-term and short-term assets is always a tricky business.
I believe that any argument attempting to compare margin loans over shares versus property investments with housing loans is really spurious and misleading.
Horses for courses.
The point you raised about not valuing the property daily is part of the key....
With real estate the bank doesn't automatically call in the loan if your property decreases in value.
In fact even if the property decreases to below the bank's lend amount on a valuation they're highly unlikely to call in the loan so long as you continue to pay the mortgage.
With property in Sydney & Melbourne, where 3% gross returns may apply, property have a 25 year average of achieving better than 9% returns - so that 5% figure is well below average. And there are no indications of a long-term decline in Sydney and Melbourne populations, hence expecting higher than 5% CG over the next twenty five years is entirely reasonable.
As to margin loans being safer...well that's a VERY big claim.
Land as an asset is a scarse resource, it doesn't increase or deplenish in human timeframes, rather in geological ones.
Housing as an asset is not quite as scarse a resource....denser housing (to a point) can be built. Moving housing further from centres is achievable with transport improvements....however for the most part this occurs in generational timeframes. There have been no innovations since the introduction of mass assembly of automobiles that have significantly changed housing patterns.
So with housing as an asset you have a degree of security. So long as populations continue to rise or even in stable situations & you carefully select the assets & insure them against damage you can rely on a property asset as a long-term investment to retain and increase in value, subject to price cycles.
With shares, you do not control the asset. No matter how good you are at selecting shares, the management team can easily change from an effective to an ineffective one. Businesses can change, new competitors enter, new technologies reshape the landscape.
New companies are constantly formed, old ones are dying......Very few shares can demonstrate a 25 year average of 9% annual growth or better plus regular 5% or better dividend payments per annum as can Sydney & Melbourne property on AVERAGE!
PLUS you have to use more of your own cash in the equation, so you never get the same level of growth.
If you have a property worth $500K at 90% lvr ($50K your money) growing at 7% over ten years (roughly doubling in that period to $984K), your real cash on cash gain in that period is (484+50) / 50 = 1,067%...or a compounding per year 25.5%.
If you have a share portfolio worth $500K at 50% margin loans ($250K your money) growing at 7% over ten years (roughly doubling in that period to $984K), your real cash on cash gain in that period is (484+250) / 50 = 293%...or a compounding per year 7%.
Note that the interest paid on the margin loan over that 10 year period is quite possibly more than you pay for the property (home loan & any maintenance costs) because of the interest rates!!!
Shares are useful in short term situations. Carefully select your share investments & you can make massive gains in short period.
However for medium to long-term capital growth carefully selected property has significant advantages, particularly leverage & security!
Cheers,
Aceyducey
Hiya Thommo
Investing in real estate allows you to ride out the bad times when prices fluctuate. However, margin lending can force you to sell at a bad time simply because the prices have fallen.
If you really want to borrow money to buy shares, may I respectfully suggest a LOC or something that allows you to weather the storms rather than succumb to them. It provides a similar result to margin lending, but, allows you to stay in control.
Dale
Investing in real estate allows you to ride out the bad times when prices fluctuate. However, margin lending can force you to sell at a bad time simply because the prices have fallen.
If you really want to borrow money to buy shares, may I respectfully suggest a LOC or something that allows you to weather the storms rather than succumb to them. It provides a similar result to margin lending, but, allows you to stay in control.
Dale
Thommo said:
Hi,
Given the questons you are asking I would think that this type of investment is not right for you at this time. I've heard of instances where people have been "advised" to invest in shares this way by unauthorised customer service people. The main pitfall for most novice investors using this method is the margin call which has to be paid at short notice. Either you have the money readily available or they liquidate your portfolio to get their money. Funny thing I heard was a person calling up the broker to do a margin call when the shares they had on margin lending went up.
What I suggest is you firstly need work out what your trading strategy is. The most important thing in share trading is DISCIPLINE. When you have your strategy STICK TO IT.
Blue Chip also known as Big Caps are by definition are the top 200 stock on the ASX by market capitalisation. Put another way they are just the top 200 companies valued by the number of shares on issue by the market value. This does not mean they are the top performing shares. The term Blue Chip has unfortunately misled people into believing it to mean safe.
Given the questons you are asking I would think that this type of investment is not right for you at this time. I've heard of instances where people have been "advised" to invest in shares this way by unauthorised customer service people. The main pitfall for most novice investors using this method is the margin call which has to be paid at short notice. Either you have the money readily available or they liquidate your portfolio to get their money. Funny thing I heard was a person calling up the broker to do a margin call when the shares they had on margin lending went up.
What I suggest is you firstly need work out what your trading strategy is. The most important thing in share trading is DISCIPLINE. When you have your strategy STICK TO IT.
Blue Chip also known as Big Caps are by definition are the top 200 stock on the ASX by market capitalisation. Put another way they are just the top 200 companies valued by the number of shares on issue by the market value. This does not mean they are the top performing shares. The term Blue Chip has unfortunately misled people into believing it to mean safe.
I'm in no way endorsing the following, but if you want to see the type of reasoning that goes into selecting 'safe' shares (if you believe they exist) then you could check out the navra website and have a look at both their selection process and their list of current approved shares for their fund.
When I say safe, I think from memory the navra fund pick shares that are a bit less likely to fold.
That doesnt mean they wont fluctuate like a ******** (which btw is what navra hopes for anyway).
Comes down to your strategy.
When I say safe, I think from memory the navra fund pick shares that are a bit less likely to fold.
That doesnt mean they wont fluctuate like a ******** (which btw is what navra hopes for anyway).
Comes down to your strategy.
I'm a little bemused by this. Had you read the thread it would be clear that I did not "really want to borrow money to buy shares". I have an LE a/c with a zero bal [stated above] and I have a Comsec a/c which would be dead easy to add a margin facility onto. When I ran a margin a/c I slept at night because I kept my LVR safe, with a varity of shares and always had an exit strategy.DaleGG said:
I have beaten this drum on SS before but you [again a general "you"] must be more careful about giving financial advice. You see, I have an LOC and an overdraft and a mortgage and credit cards and any company you buy shares in has a big debt/equity ratio anyway. For a conservative investor such as I, compounding debt is worse than the crap tables.
Having said all that, there are a few good oilers I can borrow against......... ummmmmm
Thommo
I must admit I prefer to buy shares from a LOC rather than Margin Loans at this stage too.
If certain shares drop in price I usually treat that as an opportunity. Having the threat of Margin Calls hanging over my head if prices drop would only tend to reinforce "herd like" thinking in my mind.
Also, I like to remain in control. Someone else telling me when to sell(or give them extra money) my assets isn't really for me. Maybe I will find Margin Loans a useful tool in certain circumstances one day but not yet.
Each to their own.
If certain shares drop in price I usually treat that as an opportunity. Having the threat of Margin Calls hanging over my head if prices drop would only tend to reinforce "herd like" thinking in my mind.
Also, I like to remain in control. Someone else telling me when to sell(or give them extra money) my assets isn't really for me. Maybe I will find Margin Loans a useful tool in certain circumstances one day but not yet.
Each to their own.
Alan, I wish I was a professional wordsmith and could make my meaning clear without others taking exception to what I write. But they [the wordsmiths] may not have anything meaningful to say, so what the hell?Alan H said:I must admit I prefer to buy shares from a LOC rather than Margin Loans at this stage too.
If certain shares drop in price I usually treat that as an opportunity. Having the threat of Margin Calls hanging over my head if prices drop would only tend to reinforce "herd like" thinking in my mind.
Also, I like to remain in control. Someone else telling me when to sell(or give them extra money) my assets isn't really for me. Maybe I will find Margin Loans a useful tool in certain circumstances one day but not yet.
Each to their own.
I did not disagree with Dale's suggestion that an LOC is the way to go. I objected to the personal advice that it is the way for me to go. Dale did not mean that, and I could have been clearer that my concern was about using an LOC to buy shares and then using those shares as collateral to buy more. This is what I call compounding debt. Remember that I said the companies you buy shares in are also indebted to the hilt.
So where do I stand? Shares are an essential part of a diversified portfolio and a margin a/c is a useful tool. Likewise, a hammer is a useful tool but if you don't know how to use one you can get a bloody thumb. Dare I say it? Shares are harder than RE! so Read up and tread carefully!
T
Thommo said:
Hi Thommo.
That's an interesting point. I guess we've had the ongoing discussion about whether Property or Shares gives the better returns.........but which is "harder"? Hmmmmm......
I was talking to a mate of mine over in Perth the other day and after the recent tenant problems he's had I think he would say Shares are easier.
But then I guess we could all tell some horror 'Share stories' too.
Personally I'd really miss not playing around with a bit of both. They can both provide differing returns at different times but crikey you can also learn different things from each asset class........and that can't be a bad thing.
I see that Suncorp Metway are advertising margin loans at 6.45% pa with no income or asset checks. They will lend up to a certain percentage of whatever stock you hold i.e. BHP they will lend 70% of your holding.
So its possible to borrow via a LOC (ie. $100k) then buy your $100 k of shares then buy another $70,000 worth of shares. I presume you could also borrow against this additional shareholding i.e another $49,000 of shares and repeat the process. Great if the shareprice keeps going north not so good otherwise.
Cheers Ajax
So its possible to borrow via a LOC (ie. $100k) then buy your $100 k of shares then buy another $70,000 worth of shares. I presume you could also borrow against this additional shareholding i.e another $49,000 of shares and repeat the process. Great if the shareprice keeps going north not so good otherwise.
Cheers Ajax
Yes, with 100k cash from LOC you can order 300k worth of shares from your broker but this is exactly what I was referring to when I spoke of "compounding debt". You would be 100% leveraged in a company which owes it's bankers billions too. A bad week, even a very bad day, and your margin lender will be on the phone. This was why Dale suggested the LOC in the first place, to prevent this.Ajax said:
Consider, if you will, the unfortunate circumstance in which you thought AMP was a good buy when it slid from $20 to $18. Now <$6. Or HIH and PAS. You are not yet entitled to claim the 100% capital loss on at least one of them. Quality portfolios would include LLC and BIL too which would have scared you to death last year.
All this is managable, but not in an environment where you have no equity.
Thommo
Ajax said:
6.45% is v. low for margin lend. http://www.suncorp.com.au/suncorp/img/assets/3634/loan_interest_rates.asp#sharegear says 7.45%, which is still a good rate.
Where was it advertised ?
