Margin Loan
Borrowing to invest, otherwise known as gearing, gives you a wider range of investment
opportunities and increases your potential returns. For years Australians have been
gearing into investment property, enjoying the tax benefits and profit potential
of assets they couldn’t otherwise afford. A CommSec Margin Loan helps you put the
same principles to work with shares or managed investment funds.
And you don’t need large amounts of money to get started in margin lending. 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 $250 a month.
For each dollar you invest in margin lending , you can borrow up to two dollars,
multiplying your investment. That makes it possible to build a large holding surprisingly
quickly.
Of course, margin loans are 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.
I can do that!
- 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.
In addition to 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.
In just under 10 years, Paul’s investment had increased in value to $43,226 giving him
an unrealised profit of $33,226. At the same time, despite market volatility in the financial year
leading up to 2008, Anna’s investment increased in value to $129,679 giving her an unrealised profit
of $83,132 after paying off her loan and interest costs.
That’s over two and a half times the profit of Paul’s ungeared investment.
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|
Paul without Margin Loan
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Anna with Margin Loan
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Investor's own capital
|
$10,000
|
$10,000
|
|
CommSec Margin Loan
|
-
|
$20,000
|
|
Total initial investment
|
$10,000 |
$30,000 |
Woolworths share purchased
30/06/2000 at $6.165
|
1,622
|
4,866
|
|
Portfolio value 31/05/2010
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$43,226
|
$129,679
|
|
Less interest cost
|
-
|
$16,548
|
|
Less initial investment |
$10,000
|
$30,000
|
|
Unrealised capital gain |
$33,226
|
$83,132
|
|
Total dividends received
|
$9,570
|
$28,709
|
Assumptions: Anna has a 66.7% initial gearing ratio. Interest has been
calculated using the CommSec Margin Lending variable rate during the period and assuming
accrued interest is paid at the end of each month. 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.
Please be aware that a CommSec Margin Loan exposes you to unfavourable movements in the value
of shares and units in managed funds, and possibly to margin calls. Please be aware that you are
personally liable for any shortfall that occurs should your entire portfolio have to be sold to
answer a margin call where there have been falls in the market value of your investments. Only
investors who fully understand the risks associated with gearing into investments should apply.
CommSec Margin Loan is a product of Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945
administered by its wholly owned but non-guaranteed subsidiary Commonwealth Securities Limited
ABN 60 067 254 399 AFSL 238814 ("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.
As this information has been prepared without taking into account your objectives, financial situation or
needs you should, before acting on this information, consider its appropriateness for your circumstances.
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Trade Execution
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Minimum
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Above Minimum (flat)
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Share trades Internet
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$19.95 up to $10,000 transaction value
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$29.95 (up to $25,000)
0.12% (above $25,000)
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Share trades over the phone
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$59.95 up to $10,000 transaction value
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0.52% (up to $25,000)
0.49% (up to $1m)
0.11% (above $1m)
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The following prices are based on a per trade basis and include GST.
Interest Rates
| Interest Rate | Term | Rate p.a |
|---|
| Variable | | 9.20 |
| Fixed (prepaid interest) | 3 months | 8.70 |
| 6 months | 8.70 |
| 9 months | 8.70 |
| 1 year | 8.70 |
| 2 year | 9.35 |
| 3 year | 9.60 |
| 5 year | 9.70 |
Download a Margin Lending brochure
*Other fixed terms are available on request
Interest rates are subject to change without notice.
Diversifying offers more benefits than ever before with CommSec’s Portfolio LVR.
CommSec’s Portfolio LVR is an enhanced feature that rewards investors who hold a diversified portfolio of five or more approved securities by granting higher lending ratios on an increased range of Australian equities.
It can help provide a higher cushion against margin calls or increase potential investment power. Find out more
Features & Benefits
Features
- Portfolio LVR is available for diversified portfolios. A diversified portfolio is one that contains 5 or more Approved Securities (including equities, managed funds and cash investments which are taken into account when calculating your portfolio’s lending value).
- Portfolio LVR is applied to Approved Equities held in diversified portfolios.
- Portfolio LVR will always be equal to or higher than the standard LVRs applied to securities in non-diversified portfolios.
Benefits
- Increase your cushion against margin calls
- Boost your LVRs on equities in our Approved list
- Receive LVRs on bonus stocks (stocks which otherwise receive 0% LVR)
I can do that!
- The strategy.
-
Antoinette and Michael both have portfolios with a market value of $100,000.
Antoinette’s portfolio is diversified, with 6 Approved Securities (including Equity 1), while Michael has a single stock portfolio in Equity 1.
Antoinette receives an LVR of 75% while Michael receives a 65% LVR on Equity 1.
- How she did it.
-
Since Antoinette holds 5 or more approved securities, her investment portfolio is considered diversified and qualifies to receive Portfolio LVR.
Antoinette takes full advantage of Portfolio LVR and receives an 75% LVR on Stock 1; although Michael also holds Equity 1, as his is a single stock portfolio, he receives only a 65% LVR.
- The result.
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By holding a diversified portfolio Antoinette has effectively increased her portfolio’s lending value. The increased lending value can be used as additional buffer against a margin call or used to purchase additional investments.
A diversified portfolio will also allow Antoinette to receive a 40% LVR on bonus stocks, should she hold any in the future.
The information on this site has been prepared without taking account of the objectives, needs, financial and taxation situation of any particular individual.
For this reason, any individual should, before acting on the information on this site, consider the appropriateness of the information, having regards to
their own objectives, needs, financial and taxation situation, and, if necessary, seek appropriate independent financial and taxation advice.
This website notes some features of a CommSec Margin Loan. Please obtain and consider the product disclosure statement (PDS), available from the
Commonwealth Bank of Australia (ABN 48 123 123 124 AFSL 234945) as the product issuer at
www.commsec.com.au
before making any decision about the product.