How To Invest With A Margin Loan

By on January 12, 2017 in Online Income with 0 Comments

If I had to be honest with myself, at some stage I just let go.  Over the last few years’ things have been tough, relationships ending, different jobs, poor trading habits, loosing family members, its been a big bag of dicks.

All sorts of stuff has been going on.  But like everyone else I have a choice, and this year I have made mine.  As I wrote about in the post  My 2017 goals and how I am going to achieve them.  One of my 2017 goal is to invest $5000 into shares.

I have done this many times in the past and certainly have invested larger amounts then that. For right now it’s a perfectly achievable number in the next 12 months.

So lets take a look at how I will do it :

There are 2 methods to buying assets and investing

  • Use your own cash
  • Use Other Peoples Money – Also a great movie starring Danny Devito – Other People Money

I tend to blend those two ways by using a Margin loan facility from my bank

So whats a Margin Loan ?

A margin loan lets you borrow money to invest and uses your shares or managed funds as security. It can help you increase your returns but it can also magnify your losses. Margin loans are for dedicated investors who actively monitor and manage their investments

How do I get cash to invest?

Well this one takes a little will power and a bit of creativity, as well sticking to a budget.  If you are anything like me, and plenty of others you blow through whatever money you earn, just like a drunken sailor on shore leave.

I use a secondary bank account, and transfer a set amount of money over each week, so I don’t have a chance to spend it.  I factor this into my weekly budget and what I earn, so I know that I am saving a little bit each week.

For this goal I have been putting $50 a week aside for a little while now leading up to 2017.

Which isn’t much when you think of it, that’s a carton of beer or a couple of bottles of decent wine, a cup of coffee each day.  If you get where I am coming from you just need to sacrifice a little to get a lot, and trust me a little bit adds up .

$50 per week x 52 = $2600 per annum

Now because I wanted to get a jump on this goal for 2017, I decided to invest $800 of my own money, with $800 of a Margin loan. Which looks like this

 Margin Loan

The Things to know

 LVR – Loan Value Ratio

Mine currently is 63% as at today.  But guess what because I have up my daily coffee ritual I am still putting $50 away per week.  It won’t take me long to reduce that LVR down to below 50%, which is the sweet spot to be with a margin loan.

Also keep in mind that any interest that you have to pay on a Margin Loan is also a tax deduction.

I think investments should pay for themselves

You know what so do I, the great thing about buying shares is the dividend it will pay you.  Which on the shares I bought is currently 6.01 %

So although my initial outlay was just $800 then I geared (borrowed) another $800, that means I got to buy double the amount of shares.  So my return looks like this now.

330 shares @ 6.01% – $102.30 per year

Vs

150 shares @ 6.01% – $51.15 per year

Whats the real cost of owing shares

Ha, this is the bit I love, so for a small outlay I get the following investment

Out lay – $800

Income – 102.30 per year

7% pa interest on loan – $56 per annum cost

Net return – 6 % on investment – Not to shabby far from great, but better then money in the bank.

Is it scale able

With any investment you do, you also should see if its scaleable, whether it property investment, share investment or online websites. ie. Niche website design, conventional business .  You should be looking to scale anything you do

With the above, it certainly is, the only thing I really need to do is to keep putting money aside each week, as well bank the dividends.  Then monitor my investments, wait for opportunities to buy or sell, or to reinvest.  That way it will continue to grow and I can keep investing.

So there you go, 4th day into the new year, already got the first goal under way.  Its a very simple strategy and easy to do if you are committed to changing your financial position.

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About the Author

About the Author:

Hi I’m Darren Boland, my passion is in creating Passive Income, this site is all about my exploits the good and the bad about how I got about doing just that.

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