Loans for share portfolios

[TheBacon]

How easy is it to get large loans for share portfolios?

Do the same serviceability criteria apply for loans against share portfolios? For example, am I able to obtain an 80% LVR loan on a blue-chip portfolio?

If I am able to borrow a few hundred thousand for a house, can I borrow the same for shares?

I ask this as I am considering investing into shares. Whilst I have a reasonable amount available as equity in my PPOR and IP, it is not as much as I would be able to borrow against a house.

Currently my investments constitute property only (unless you count a few $$ in speccy mining company shares), I would like to branch out into shares also.

Anyone have any idea?

Cheers

TB

 

[Sunfish]

For example, am I able to obtain an 80% LVR loan on a blue-chip portfolio? If I am able to borrow a few hundred thousand for a house, can I borrow the same for shares?[/SIZE][/FONT]

No! and No! Nor should you even contemplate it.

Chill, and be patient. Now is no time to be adventurous.

 

[LynnH]

TB

An 80% loan for shares - that is seriously scary under the current sharemarket conditions! As Sunfish says, much patience is needed.

Cheers
LynnH

 

[yo yo ma]

If you are getting a margin loan, the value depends on the share you are buying. For the blue chip companies it is up to 75% (see PDF below).

I am using a LOC against my properties to buy shares with because it is a cheaper interest rate than the margin loan, plus I won't be subject to a margin call if shares do drop further. I am unsure about the LVR because I just asked for as much as they would give me...

http://images.comsec.com.au/MarginLending/Accepted_Shares.pdf

 

[chilliaa]

No! and No! Nor should you even contemplate it.

Chill, and be patient. Now is no time to be adventurous.

For once 100% agree with Sunfish
Now is not the time to be enquiring about margin loans for newbies.
If you are not VERY experienced in this area foreget it. Volatility (in many cases due to mispricing caused by uncertainty) will kill you.
Even experienced players with margin loans are being wipped off.

 

[TheBacon]

LOL, OK everyone, relax – I am not about to sell all of my property and become a day-trader, FOREX trader, etc, etc…

Currently I have many hundreds of thousands of dollars in debt secured by property. This is my only investment asset class and, whilst I intend to continue investing in property, I also intend to branch into shares.

Speculative stocks – I will invest small amounts of cash, with a view to short/medium term gains
Quality stocks – this is where I intend to look into a larger cash investment, bolstered with margin loans.

Volatility – OK, the advice above sounds reasonable. I don’t want to be forced to sell shares or top up loans with tens of thousands of dollars just because another bank writes down their assets etc. Perhaps a smaller LVR is better at this time.

So then, back to the loans. How easy is it to get the loans? What are the interest rates? Who are the main players?

I am still in the research phase, but looking to get into the market late this year, or early next year.

Cheers

TB

 

[Aaron Sice]

if you want leverage, you're talking CFDs. 1:10.

if you want to margin a position, use a broker's margin - 1:2. for every dollar you put in, your broker will put a dollar in as well.

 

[ernie]

Hi TB,

I suppose you're already familiar with setting up a LOC, so I presume you are asking about margin loans. It is relatively quick and easy to get a margin loan setup. If you have some shares already all you need to do is to fill up the application form and use these shares as security. Organized my ML a long time ago but I remember it took less than a week to set up. Current interest rates are over 10%. Check out this site for more info: www.marginlendingchoice.com.au

In terms of main players, I'd say it is Comsec (via the CBA) or eTrade (via ANZ). There is a lot of literature about the benefits and dangers of margin loans freely available on the web so I suggest you spend some time googling.

If you want my advice (not worth 2c), I suggest you start slowly with one or two stocks and a very conservative LVR...say 20%. You'll see your LVR fluctuate each day and like most things I'm sure you'll get the hang of it after you've already committed your funds. From there you can look at raising that LVR as you go along.

Hope that helps. Happy Investing!

e

 

[The Y-man]

[So then, back to the loans. How easy is it to get the loans? What are the interest rates? Who are the main players?

Very easy to get loans - easier than no doc. Just fill in a form and go.
Interest rates are around 10% pa (variable)



Cheers,

The Y-man

 

[WASP]

Margin Loans look to be a scary beast?

Magnifies both wins and losses

is this right, if we put $100,000 into a margin loan and get a 65% margin loan we get $285,714.25 worth of shares with a $185,714.25 margin loan, if those shares are $1.20 or $1.2000 each we get 238,095.2416 shares

1. they go up 30% and we get $71,428.5724 added value + $285,714.25 = $357,142.8224
   
2. they go down 30% we get $71,428.5724 lost value - $285,714.25 = $214,285.6776

if we leave the market at our 30% loss we have to pay back the $185,714.25 loan so are left with $28,571.4276


are the sums right?

what are the shares worth each in 1 and 2?

if you prepay interest and leave the market do you get your interest back not used?

if you get a margin call do the buy more shares or units or does it sit in an offset account or just lower the money they have put in?

if the market recovers in the above do you get your margin call money back?

can anyone assist?

 

[Sunfish]

Your sums would be about right. Didn't check them though.

Your other questions show you must learn to walk before you run......

To prepay interest you must take out a fixed loan. If you sell your portfolio, the proceeds will be put in a cash management account until expiry date. It will accrue interest at the standard rate at the time but you will not have access to the money till expiry. (Any excess cash over the loan amount will be available).

If you are subjected to a margin call you must sell some equities, add some equities or cash till you are under the max loan percentage for your shares. If the market recovers and you had balanced your account by adding cash or shares, yes they will be available for re-draw. If you sold, they have gone to money heaven.

Why this sudden infatuation with shares, bank shares in particular? I have been forecasting big gains in resource commodities and producers for many years (and most have tripled, at least, in the time) but few were interested, in spite of us being in a bull market. Now we are in a bear, people want to jump in. Why? My guess is that you are madly trying to show that you are good little contrarians. Don't, you'll get hurt.

 

[ILoveProperty]

Why this sudden infatuation with shares, bank shares in particular?

Bank shares - good yields? And looking better as prices tumble?

Maybe people see banks as businesses that make truckloads of money so the 'fundamentals' are sound?

Long term they are a sure thing? ie. yields on purchase price will go up, share prices will go up.

 

[Sunfish]

ILP. We are in a bear market. You will get hurt.

 

[tobe]

I borrowed some money in my latest re-fi and used it as collateral for a margin loan through etrade. They asked me to fill out a form, and tick a box with my income range ie 0 to 50k per annum 50 to 100k per annum etc, and tick a box to say I was over 18 and an australian resident. That was the extent of their loan approval process.

They then have a list of approved securlties with the LVR they will lend to. Up to 80%. They can change this list at any time, add new stocks, and delete others. They recently deleted a whole swag of Babcock and brown offshoots. So even if your shares dont go down, you can be subject to a margin loan at the banks whim so to speak.
I am keeping back the value of margin margin loan in the offset in my home loan, so I wont be forced to sell stocks in a margin call situation.

I like it because I wanted to learn about the share market, and I find I learn best by doing. I also find it easier to invest with the banks money. I will always find the money to make the payments on a loan, whereas my commitment to a regualar savings plan always seems to fall short.

It is risky in a bear market, but so is cash in the bank. Diversification is one argument, or not putting all your eggs in one basket, the other side is to put your eggs in a basket you watch very closely...

 

[Aaron Sice]

ILP. We are in a bear market. You will get hurt.

so go short!

 

[TheBacon]

Why this sudden infatuation with shares, bank shares in particular? I have been forecasting big gains in resource commodities and producers for many years (and most have tripled, at least, in the time) but few were interested, in spite of us being in a bull market.

Didn’t get your weekly forecast email J Also, everyone takes an interest in different things at a different time. And, people new to an area often have more enthusiasm (and less knowledge) than those who have been in the game for a while. Have a chat to someone getting into property for the first time; they just want to buy something, anything, anywhere and make big $$$. They wont listen to advice like; consider infrastructure, transport, comparable values, development potential, rental returns etc – they just want to buy something. Maybe I am still at the relatively new stage of share investing and am keen to get in.

In my situation I have kept share investing in mind for a long time without doing much about it (sold some company provided shares for an absolute bundle, but that was just being in the right place at the right time, wouldn’t call it investing by any means). Bought and sold a few shares that I should have just kept long term (DJS, WES), played a little with some speccy stocks with not much luck, not much loss either.

From my reading it would seem that we are right in the middle of a bear market – generally a bad time to invest. But I think this is a good time to get ready. When this all ends there will be good quality stocks that have good prospects but have been slaughtered because of the general market or because of sentiment towards their sector. Banks and Listed Property look to be taking a beating at the moment and likely will continue to in the near future. When every man and his dog are saying keep away from banks and don’t burn your money on LPTs (and their dividend yield is greater than the interest rates on margin loans) I will be there, looking to jump in.

Note though that I will look for sound businesses, banks that have shed their exposure to sub-prime, LPTs that have restructured back into tradition buy/rent/manage companies instead of mezzanine finance monsters. When all the cutting and scaling back is done it will be worth examining these sectors.

My guess is that you are madly trying to show that you are good little contrarians. Don't, you'll get hurt.

Fair call and good advice. I like the idea of contrarian investing, but acknowledge the need to make sound decisions on the numbers. Some dogs can remain dogs for a long time (TLS anyone?).

I appreciate the time taken to respond the these silly questions, every bit of advice, every new idea helps in the learning.

Cheers

TB

 

[Sunfish]

so go short!

I am not discussing what I am doing. I am warning not to borrow and buy banks (long) just because they appear cheap. IMHO that is an illusion. They are not.

I am not authorised to give investment advice and anything I write is for discussion only. Please seek professional advice, not that of a fish.

 

[Sunfish]

Didn’t get your weekly forecast email

The collected wisdom of Thommo, Richardc and Sunfish is still available in the archives but sadly the better bits are lost in the sea of rubbish we all tend to post.

If you were to waste a weekend reviewing my posts I think you would find most predictions I have made have been OK. The larger picture I have tried to paint of a "resources super-cycle" has been spot-on so far. One matter I have posted on a few times is how important it is to make a start, do some real trades and feel the despair and euphoria as things change. Only when you've been doing this for some time will you be in a position to recognise and take advantage of the real bottom when it happens.

You are doing this already so my warnings are not really intended for you, just the over-enthusiastic beginners.

 

[turk]

One adage I have found to be very true over the years of trading stocks is to trade with the trend, be it trading long or short.

DO NOT TRY TO REINVENT THE WHEEL, SQUARE WHEELS DO NOT WORK ALL THAT WELL.

Regards

PETER

 

[chilliaa]

Your sums would be about right. Didn't check them though.

Your other questions show you must learn to walk before you run......

To prepay interest you must take out a fixed loan. If you sell your portfolio, the proceeds will be put in a cash management account until expiry date. It will accrue interest at the standard rate at the time but you will not have access to the money till expiry. (Any excess cash over the loan amount will be available).

If you are subjected to a margin call you must sell some equities, add some equities or cash till you are under the max loan percentage for your shares. If the market recovers and you had balanced your account by adding cash or shares, yes they will be available for re-draw. If you sold, they have gone to money heaven.

Why this sudden infatuation with shares, bank shares in particular? I have been forecasting big gains in resource commodities and producers for many years (and most have tripled, at least, in the time) but few were interested, in spite of us being in a bull market. Now we are in a bear, people want to jump in. Why? My guess is that you are madly trying to show that you are good little contrarians. Don't, you'll get hurt.

OK Sunfish, what about from this point in time to several years in the future, say 2012?
What are your predictions? do you think resource shares will still outperform for the next 4 years?