A main consideration of a margin loan is what percentage of equity will the loan be (<- bad grammar!).
For example, if you have $100, taking a $5 margin loan seems fine to me, if you're invested in reasonable equities. To get a margin call your now $105 portfolio would have to drop more than 90%.
On the other hand, if you have $100 and you take a $200 margin loan, you're in deep doo doo. Your now $300 portfolio might drop a very small % and you would get a margin call, forcing you to liquidate assets at the bottom.
I am always on margin, but I try to keep the borrowed amount around 10%-15% of my assets.
A 0% margin loan is great, as long as you don't get close to a margin call forcing you to sell assets at the bottom of the market.
If the margin interest in a given year is greater than the standard deduction, you can itemize deductions and deduct margin interest on your taxes. That's nice.
Also, don't hesitate to ask your broker for a larger amount of loan or a lower rate. I've got a low margin rate from TD due to constantly asking them if I can have a lower rate, and (surprisingly) the response was often yes. But ya gotta ask. |
