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FOCUS ON – MARGIN LENDING |
How to minimise the risk of margin calls
Margin calls are a safety feature that lenders have added to their loans to ensure that the amount you owe doesn’t end up exceeding your portfolio value. ie it’s an early warning sign that you should reassess your portfolio to reduce your exposure and reassess your portfolio. Lenders aren’t closed to suggestions here, they just want to see your borrowing to fall below X% of the total value, if your able to add more cash, shares or managed funds as security they’ll be happy to accept this.
Where most investors fall foul of a margin call is where they have borrowed to the hilt and then encounter a fall in the market. As you can imagine, since this is usually the worst time to sell out of the market, margin calls can crystallise short term losses.
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| How to get the best out of a margin loan and how to avoid margin calls? |
Get the best interest rate - It’s easy to get carried away thinking about the maximum you can borrow and features of the loan, but at the end of the day, it is just a loan. Interest rates are one of the easiest things to compare. Using a discount broker such as Wealth Focus can save you money here since we can negotiate with your lender for reduced rates on larger loan sizes as well as rebating the commission we receive putting more money in your pocket.
Keep your overall borrowing well below the maximum – Margin calls occur when you hit the ceiling of borrowing for the overall size of your portfolio. By borrowing only 50% of your portfolio’s value, the portfolio would have to drop significantly before you are asked by your loan provider to either provide more security or sell some of your investments.
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Diversify your portfolio –This sounds like common sense, but you would be surprised how many investors sit with heavy weightings in only a handful of shares. Spreading your investments across a larger number of shares or managed funds ensures that you are not at risk of a margin call just because one share plummets in value.
Appoint WF as your discount broker - Regardless of who your margin loan is with, as a discount broker, we can in most cases, offer a discount on the rate you are paying. Appointing Wealth Focus as your active adviser means that we receive any ongoing trail commission. As a discount broker with reduced ongoing costs, we are able to rebate some of the ongoing fees to enhance the interest rate you receive.
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| Company |
Interest Rate |
Further discount through Wealth Focus |
No. of
approved
securities |
No. of
approved funds |
Min. loan size |
| NAB Margin Lending |
10.35% $250K,
10.10% $250K- $1Mill,
9.85% >$1Mill |
0.15%,
0.25% if
more than
70% invested via
MLC mastertrust |
500 |
800 |
$20,000 |
| Suncorp Margin Lending |
10.30% <500K,
10.05% >500K |
0.10% |
116 |
1231 |
$20,000 |
Citi Smith Barney
Margin Lending |
10.25% <$250K,
10.10% $250K - $1Mill,
9.95% > $1Mill |
0.10% |
895 |
978 |
No
minimum |
St George Margin
Lending |
10.50% <$250K,
10.25% $250-500K
10.00% > $500K |
0.05% |
682 |
1288 |
$10,000 |
| Goldman Sachs JBWere |
10.35% |
0.10% |
1500 |
500 |
$60,000 for first 6 mths |
| Leveraged Equities |
10.50% |
0.10% |
398 |
2087 |
$20,000 |
| Colonial Geared Investments |
10.50% |
0.10% |
497 |
2036 |
$20,000 |
| BT Margin Lending |
10.65% |
0.20% |
600 |
2400 |
$20,000 |
| Macquarie ML |
10.70% |
0.10% |
500 |
2000 |
$20,000 |
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| Alternatively click on the companies listed above to register and request a PDS |
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FUNDS FOCUS Investment newsletter: Issue 2, June 2008
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Order a ZERO entry fee PDS
To download or request a hard copy Product Disclosure Statement with no entry fee, please complete order form below. Portfolio Healthchecks and the Wealth Focus annual report can be faxed back on 1300 55 98 70 or posted to us for free at Wealth Focus, Reply Paid 760, Manly, NSW, 1655 |
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| What do we get paid |
Wealth Focus will rebate 100% of the entry fee on managed fund investments as additional units and all of the sales commission received on agribusiness (8%) listed in this issue in the form of a cheque. Wealth Focus will receive a 2% marketing commission on agribusiness investments and may receive a trailing commission of up to 1.00% pa. for managed funds, and 0.5%pa for margin loans, depending on the manager we have a relationship with. This trailing commission is paid by the fund manager and is NOT an additional charge to the investor. |
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This month, we have highlighted a number of investment opportunities for investors looking for returns in a falling market and cover some of the basics for end of year tax planning. |
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Cromwell (unlisted) Property Fund.
Favoured by many investors for their low volatility and tax deferred income, unlisted property funds have once again come to investor attention after they have continued to provide returns in a falling market.
p11 |
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FEA Plantations Project 2008 (tax effective forestry)
There is an increasing gap between world supply and demand of timber coupled with the current tax incentives makes for a compelling investment
p8 |
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Free Portfolio Healthcheck
Probably the worst thing you can do is sit on an portfolio full of proverbial "dogs" in the hope that they'll somehow get their act together and produce you the great returns overnight. We're giving investors the opportunity to get a free report across all their managed fund investments.
p13 |
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