Join our investing community

Using credit to do share trading?

Discussion in 'General Investing Discussion' started by billionare, 27th Oct, 2008.

  1. billionare

    billionare New Member

    Joined:
    27th Feb, 2008
    Posts:
    3
    Location:
    sydney
    Is this a good strategy? I heard the interest charged to me is tax deductible?
     
  2. Billv

    Billv Getting there

    Joined:
    15th Jul, 2007
    Posts:
    1,796
    Location:
    Sydney, NSW
    only if share prices are going up

    It is
     
  3. Tim

    Tim Well-Known Member

    Joined:
    27th Jun, 2006
    Posts:
    111
    Location:
    Lismore NSW
    If you are asking the question then probably no. If you are gearing into a fund you would only do this on the premise that stocks are rising or are about to rise - otherwise you WILL lose money.

    Obviously the market will go up at some point, in the interim you will need to consider:

    1) What stocks you will buy (or managed funds or index stocks/funds)
    2) Gearing ratio
    3) Inestment timeframe
    4) Risk strategy - will you hold if the market keeps dropping to a 60% fall?
    5) How will you cover another 5-25% drop in the market when you are geared and how long can you/are you willing to hold this position for?

    Tim
     
  4. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,619
    Location:
    Sydney, Australia
    In simple terms - you need to be returning at least your rate of interest to justify it.

    Eg. borrow $10,000 @ 10% = $1,000 pa in interest cost

    Total return 6%pa on investment = $600 pa return

    Net profit = -$400 ... you are going backwards.