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Loading ...Margin loans - A Friend Of Mine Says They’re The Way To Go, Why?
March 11, 2008 by Josie Kay
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Q. A friend of mine has a margin loan. Why would he have one?
Josie’s answer - There has been lots of bad press lately about margin loans (you may recall Eddie Groves from ABC Learning is now in deep financial trouble because of them).
Margin lending is a higher-risk strategy. Your investment, for example, the shares you bought, is the security for the margin loan and its value varies on a daily basis.
If the share market takes a nosedive you might suddenly no longer have enough security for your loan.
Basically some people prefer to use the equity in their home for investment purposes, whereas others don’t want to risk losing their home if things get really bad.
You also need to be aware that the interest charged on margin loans is usually higher, normally around 1% extra (so you need a higher return to compensate you).Don’t be put off my margin loans.
As they say, ‘everything in moderation’. It is usually those trying to make quick dollars that get into trouble.
Don’t forget that the above information is general in nature and not specific to your goals and objectives. It is recommended that you seek personal financial advice specific to your needs. Also remember, that apathy can end up being your biggest expense!
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