Using credit to do share trading?

Discussion in 'Share Investing Strategies, Theories & Education' started by relentless1, 27th Oct, 2008.

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  1. relentless1

    relentless1 Member

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    Is this a good strategy? I heard the interest charged to me is tax deductible?
     
    relentless1, 27th Oct, 2008
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  2. BillV

    BillV Well-Known Member

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    only if share prices are going up

    It is
     
    BillV, 27th Oct, 2008
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  3. Tim__

    Tim__ Well-Known Member

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    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
     
    Tim__, 27th Oct, 2008
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  4. Simon Hampel

    Simon Hampel Founder Staff Member

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    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.
     
    Simon Hampel, 27th Oct, 2008
    #4
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