Re: Margin
Assume that you have $10,000 cash and that you buy $15,000 worth of stock, including a margin loan of $5,000.
At most brokerage houses, you will not get a "margin call" unless and until the amount of the margin loan exceeds 70% of the value of your stock portfolio. The brokerage house has the right to adjust this % if it considers your portfolio to be "concentrated", which may involve having over 30% of your portfolio value invested in a single stock.
Assuming no concentration, in this case your portfolio value would have to decline to $5,000 / 70% = $7143. In other words, your portfolio would have to decline by $7857 or about 52%. As interest is accrued and added to your margin balance each month, these figures would change slightly.
In the event of a margin call, you could meet it by paying down the outstanding balance or selling sufficient stock to restore the margin balance to no more than the above 70% of your portfolio value.
So if you consider it highly unlikely that your portfolio value will decline by one half, or if you have other resources with which to pay down the margin balance, and if you are able to handle the risk, you may choose to exceed the Motley Fool's 25% suggestion.
JB |
