Margin lending
|
|
|
Borrowing to invest, or gearing, gives you a wider range of investment opportunities and increases your potential returns. For years Australians have been gearing into property, enjoying the profit potential of assets they couldn’t otherwise afford. A CommSec Margin Loan helps you put the same principle to work with shares or managed investment funds.
And you don’t need large amounts of money to get started. Using the regular gearing option, you can begin building a geared investment fund portfolio with an initial contribution of only $1,000, plus regular monthly contributions of any amount you like.
For each dollar you invest, you can borrow up to two dollars, multiplying your investment. That makes it possible to build a large holding surprisingly quickly.
Of course, margin lending is not for everybody. Just as a margin loan multiplies your potential returns when you invest successfully, it can increase your losses if the market falls. That’s why it’s important to make sure that you’re prepared, and to take a long-term view.
|
|
|
| |
The strategy. In June 2000, Paul and Anna both decided to invest in Woolworths shares. But, while Paul simply invested $10,000 of his own capital, Anna decided to increase the size of her investment using a CommSec Margin Loan.
How she did it. As well as investing $10,000 of her own money, Anna used a CommSec Margin Loan to borrow an extra $20,000, making a total investment of $30,000.
The result. After six years, Paul’s investment had increased in value to $32,683 giving him an unrealised profit of $22,683.
At the same time, Anna’s investment increased in value to $98,050, giving her an unrealised profit of $58,241 — over two and a half times the profit of Paul’s ungeared investment.
|
|
Paul
without Margin Loan
|
Anna with Margin Loan
|
|
Investor’s own capital
|
$10,000
|
$10,000
|
|
CommSec Margin Loan
|
–
|
$20,000
|
|
Total investment
|
$10,000
|
$30,000
|
|
Woolworths share price 30/6/2000
|
$6.165
|
$6.165
|
|
Shares purchased
|
1,623
|
4,866
|
|
Woolworths share price 30/6/2006
|
$20.15
|
$20.15
|
|
Portfolio value 30/6/06
|
$32,683
|
$98,050
|
|
Interest cost
|
–
|
$9,809
|
|
Unrealised capital gain
|
$22,683
|
$68,050
|
|
Dividends received
|
$3,828
|
$11,484
|
Assumptions: Anna has a 66.7% initial gearing ratio. Interest has been estimated using a margin of 3% above the RBA target cash rate at the end of the relevant month. Since its introduction in 1999, the interest rate for the CommSec Margin Loan has been lower. Brokerage and franking credits have not been taken into account. This example is hypothetical and for illustrative purposes only. Neither Commonwealth Bank nor CommSec specifically recommend the stock used in the example. Past performance is not indicative of future performance.
CommSec Margin Loan is a product of Commonwealth Bank of Australia ABN 48 123 123 124 administered by its wholly owned but non-guaranteed subsidiary Commonwealth Securities Limited ABN 60 067 254 399 (“CommSec”), a Participant of the ASX Group. Applications are subject to the Commonwealth Bank’s normal credit approval. Full terms and conditions are available on application. Bank and Government charges apply.
|
|