Margin Lending - the good, bad and the ugly.
November 6, 2008 by Josie Kay · Leave a Comment
Margin loans are simply an investment loan that is secured against the assets you are purchasing, such as shares and managed funds. You don’t need to sign over your house and that is why so many people like them. However, investors can get into trouble if their investment falls below a certain level, known as the loan to valuation ratio (LVR).
You may have heard of margin calls. When these happen, investors are in a bind. They can either sell down their investment to restore the LVR, in other words forced to crystalize losses, or have to find the funds to top it up. What a tough decision to make in this current economic climate. You could be buying bargains, or perhaps throwing good money after bad. Some institutions also allow you to assign other assets. Read more
Margin loans - A Friend Of Mine Says They’re The Way To Go, Why?
March 11, 2008 by Josie Kay · Leave a Comment
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. Read more
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