Every investor is slightly different — their goals, their strategies and their appetite for risk can all vary. While we can’t provide scenarios for every possible situation, we’ve created a series of case studies that show how margin lending can work for a number of different investors, with different aims.
These case studies address topics of particular interest to investors with margin loans, such as gearing ratios (especially important for managing risk in volatile markets), boosting retirement savings and making the most of potential tax benefits, with real-life illustrations of how each strategy works.
Case Study 1
Amy is a 27-year-old management accountant working for a large city firm. After five years in the job, she has recently been promoted and wants to put her money to work so she can eventually buy a home.
Case Study 2
Ian is a 37-year-old engineer who works for a multinational manufacturer. He is in the highest tax bracket. His wife Valerie was a dental nurse until she left work just before the birth of their two children. With a little extra money coming in, Ian and Valerie would like to start building an investment that might eventually fund a private high school education for their children.
Case Study 3
Garry has a CommSec Margin Loan through which he purchased 1000 XYZ fully paid ordinary shares. Garry is generally bullish about XYZ in the long term, but is concerned due to the current market conditions that there may be a decline in the XYZ share price in the short term. Garry is looking for a way to protect (hedge) his investment should his bullish outlook not prove to be correct. Garry is prepared to incur a small cost in order to do this.
Case Study 4
Nick is a successful small-businessman, a father of two, and a DIY investor. Two years ago, Nick took out a margin loan to expand his investment opportunities and multiply his potential returns. As the value of his portfolio has grown, his gearing ratio has fallen to just over 42 per cent, reducing the gearing effect. Now Nick would like to make sure that he receives the full benefit of gearing, while keeping his interest costs down and maximising any tax deductions.
Case Study 5
Jodie is a 47 year old small business owner. After establishing a successful business providing her with a profitable income, she turned her attention to her personal investments to grow her wealth in the lead up to her retirement. Jodie has started investing through the share market. She recognised that wealth is generated by establishing a long term portfolio and investing for the long term. However Jodie has concerns about sudden falls in the value of her share portfolio and is looking for a way to protect her portfolio from market volatility.