Join our investing community

Alot of probably silly questions I hope you can answer..

Discussion in 'Introductions' started by Moving Up, 10th May, 2007.

  1. Moving Up

    Moving Up New Member

    Joined:
    10th May, 2007
    Posts:
    2
    Location:
    Melbourne
    Hi there, I have just started to think about Investing, still young, not much money to invest...

    Anyways, I was thinking of putting 1000 into a Managed growth Risk Fund, but then I came across these Margin Loan thingamajigs..

    If I were to invest 1000 of my own funds + 700ish from a Margin Loan at 8.70% and get returns of say 8.25% on the total 1700, Id be making or losing money? I've done some silly calculations in excel and what not and garnered that I would be in the black, but would like a second opinion..

    I would also want to then regularly contribute 100 a month as well to the fund, would I also be able to margin borrow an extra 70 every month too?

    Also what hoops do I need to jump through to get a margin loan etc and can I get a margin loan on any fund, Say the Macquarie bank fusion fund, and a margin loan from Bank of queensland..

    Is this a wise decision or do I seem too confused and what not that I should just put my money into a term deposit... :confused:
     
  2. Glebe

    Glebe Well-Known Member

    Joined:
    15th Aug, 2005
    Posts:
    932
    Location:
    Sydney, NSW
    $1700 * 8.25% = $140.25 (Revenue)
    $700 * 8.70% = $61.25 (Expenses)
    $140.25 - $61.25 = $79 (Gross Profit).

    or alternatively, without gearing...

    $1000 * 8.25% = $82.50 (Revenue)
    $0 * 8.75% = $0 (Expenses)
    $82.50 - $0 = $82.50 (Gross Profit).

    So in this example you're better off simply investing your $1000. You have to beat the cost of the borrowed money for it to be worth your while borrowing. 8.25% doesn't beat 8.75%. Of course, you're buying assets that will increase their profitability over time so that 8.75% will be smashed in the years to come.

    But where did you get 8.25% from? The long term sharemarket average is closer to 12%...
     
  3. Glebe

    Glebe Well-Known Member

    Joined:
    15th Aug, 2005
    Posts:
    932
    Location:
    Sydney, NSW
    Yes you can do what you said essentially, although I haven't looked up the Bank of Queensland's LVR for Macquarie Fusion.

    I think that the Macquarie Fusion product might not be right for you.. it's very high in fees and has a poor track record. Buying something like the Vanguard High Yield Australian Shares Fund might be better suited to you:

    vihyf - Vanguard Investments Australia Ltd

    Or Colonial's Imputation Fund:

    Colonial First State: Find a fund

    The Macquarie Fusion funds might be good for people who have lots of money in the share market and are after an absolute return fund for wealth preservation, rather than wealth generation.
     
  4. Moving Up

    Moving Up New Member

    Joined:
    10th May, 2007
    Posts:
    2
    Location:
    Melbourne
    Thanks alot for your speedy reply, Theyre about the same figures I got when doing my calculations, I must admit I just picked 8.25 out of thin air...

    I'll have a look at the two funds you mentioned, though at quick glance the Vanguard and I think the minimum investment is 5000?

    Is the colonial fund a high risk fund? Based on past returns, and considering I'm only willing to put 1000 up of my own money, what would have been the best option etc in regards to margin lending, and what kind of returns should I have expected..

    Judging by the top ten stocks in the Colonial fund though they seem to be blue chip, so moderate risk, Sorry I'f im asking stupid questions I'm just new to this and I am trying to learn as much as possible..