Margin Lending may be new to some of you. It is loan is a loan specifically set up to lend you money to invest. Typically a Margin Loan is set up to enable you to borrow to invest in shares and managed funds. A Margin Loan provides you with the opportunity to invest more than you could using your own money and increase your potential returns.
Similar to purchasing an investment property where you put down a deposit of 10%-20% and borrowing the rest, Margin Lending allows you to buy shares or managed funds with as little as 20-50% deposit, depending on the funds and shares you intend to hold within your loan. This is known as ‘gearing’ your investment portfolio.
As an advisor, I am constantly finding new ways to generate my clients greater returns and reduce the risk within their portfolio. A diverse portfolio is ‘spreading’ the risk and in the long term is the best known way to reap the rewards that the stock market offers. Diversity can be achieved through investing in different sectors, trading different products and employing different strategies within one’s portfolio. A strategy that is very good at generating long term results is known as Covered Call Writing (hyperlink takes you to my previous post about the strategy).
With interest rates at extremely low levels, variable interest rates on margin loans have followed suit and are extremely attractive at this point in time. With partners within the industry we are able to access discounted rates again.
Currently we have access to 6.5% margin loans of values less than $500,000 and the rate can be negotiated beyond this.
I am currently taking advantage of these low rate loans to get my clients into covered call writing strategies with strong, trending, high yielding stocks. The theory behind this is simple. The stocks I am looking to invest in with my clients have yields of:
BHP: 3.47% TLS: 5.37% ANZ: 5.23% NAB: 5.89% WES: 4.41% WOW: 3.78%
Lets take Telstra for example. With the yield of 5.37% our loan is effectively only 1.13% p.a. It makes complete sense to take advantage of these low interest rates when the equity market is recovering and leverage our portfolio to take advantage of this conservative strategy.
Let me known if you would like any further information.
LP
Pilkington Trading 