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A margin call is not something to fear, but is a timely reminder to review your portfolio and rebalance as required. However, it is possible to substantially lower your chances of a margin call by effectively managing your margin loan. There are several key strategies:
Many investors choose to gear their portfolio conservatively, by borrowing less than the maximum possible amount. This creates a bigger cushion against the risk of a market fall. For example, if your portfolio has a Security Value of 70%, but you gear your margin loan at 50%, the market would have to fall by 33% for your loan to be in margin call.
How far does my portfolio have to fall to before I receive a margin call?
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70%
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7%
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- |
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- |
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- |
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60%
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20%
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8%
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- |
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- |
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50%
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33%
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23% |
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9% |
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- |
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40%
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47%
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38% |
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27% |
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11% |
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30%
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60%
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54% |
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46% |
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33% |
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20%
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73%
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69% |
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64% |
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57% |
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We provide several tools to assist you in monitoring your portfolio regularly. Our statements provide comprehensive information about your position on a monthly basis. We would also recommend that you log in to My Portfolio frequently to view your position. If you require assistance, please call your personal Client Services Account Manager on .
If you hold only one or two stocks, your portfolio will be impacted dramatically if those stocks decline significantly. If you hold more stocks across a variety of sectors this can significantly reduce the impact of market fluctuations. A margin loan is a great way to increase the diversity in your portfolio. By allowing you to borrow against your existing share portfolio, you can buy additional shares to create a more diverse portfolio.
Leveraging a portfolio is fast becoming a popular wealth creation strategy. However, you should be aware that while leveraging into investments increases the potential return on investments, it is important to recognise that it can also multiply the effects of falls in share market values. We therefore strongly advise you talk to your financial planner and/or stockbroker and ensure you understand the risks, the specific tax implications, as well as the legal and financial ramifications of a margin lending facility.
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