Join our investing community

Reinvest dividends?

Discussion in 'Investing Strategies' started by bundy1964, 7th Jun, 2007.

  1. bundy1964

    bundy1964 Well-Known Member

    Joined:
    22nd Dec, 2006
    Posts:
    351
    Location:
    Adelaide, SA
    In my margin loan I have an AMP fund returning 12% paid monthly back into my loan account reducing my overall loan.

    Today I have a letter from them saying there will be a capital gains return in June and I have the option of staying as is and have the extra paid into the loan, pick a $ amount to recive each month with the rest reinvested or reinvest everything.

    I am unlikely to ever draw an income from the fund or bother too much about how much debt I am capitalising.

    Doing some rough numbers over 10 years based on 12% returns a loan rate of 8.85% and a starting capital of 30k all borrowed. Used 3 year average for c/g.

    Capital $93,175.00 after 10 years compound.
    Capitalised interest $70,050.00
    Net gain $23,125.00

    As above with 2% c/g $111,217.00
    Interest $70,050.00
    Net Gain $41,167.00

    Retired debt over 10 years $9,360.00 by paying returns into the loan.
    $15,149.00 with savings on interest paid.

    As above with 2% c/g $15,120.00
    $24,174.00 with savings on interest paid. (will be a bit less due to capital payment being once a year not monthly)

    Does my maths add up? Anything I have missed? Any reason not to reinvest the lot? Holding cost is $213 a month.
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,619
    Location:
    Sydney, Australia
    Is that your only investment in the margin loan ? How about taking the distributions as cash paid into the loan and reinvesting them into another fund for some additional growth and a bit of diversity ? Just a thought.
     
  3. bundy1964

    bundy1964 Well-Known Member

    Joined:
    22nd Dec, 2006
    Posts:
    351
    Location:
    Adelaide, SA
    It's the only managed fund in there not the only investment though. It is rapidly shrinking as a % of my investments and at the moment the cash is dropping down into the loan and used else where.

    I have found it is a good defence against falling markets given that it only moves 1/2 of what the market does and has a lag before the lower price flows through to the margin loan giving the market a chance to recover. Was great for that in February when it was a decent % of the portfolio, now it is headed into single figure % of the portfolio it's not going to smooth out many bumps. Listed Hybrid Bonds have started to be my new defensive position as they rarely move when the music stops.