Margin For Error

Sydney Morning Herald

Wednesday April 19, 2000

Vita Palestrant

Investors who took out margin loans to fund their share portfolios are probably sighing with relief that lenders restricted them to companies in the ASX 100 or ASX 200. Those reeling from the technology crash are mostly punters who borrowed freely against their home.

Says Andrew Willink, managing director of Cannex: "Lenders don't lend against everything. You wouldn't be able to borrow if you were investing in volatile technology stocks. They lend against blue-chip stocks that are in the ASX 100 or ASX 200."

At greatest risk will be punters who geared into the market using the "come and go" facility of an equity home loan.

What, then, to look for in a margin loan? Willink says borrowers are not that sensitive to interest rates. "Because the loan is used to fund an investment, the borrower is able to get a tax deduction. So long as it's about 8.5 per cent ..."

More important, says Willink, are how many companies the lender is prepared to lend against and whether they'll lend against managed funds. Also, what service do they offer? Do you have online access? And can you can pay interest in advance. "You want to be on top of your investments," he says.

Finally, he says, watch out for the traps. "Some have a minimum borrowing amount, say $40,000, and

if you drop below you may still be charged on $40,000. Ask what conditions there are and whether you'll still be charged the minimum amount even if your loan amount drops."

3.86%

AUSTRALIAN SHARES

All ords accumulation index

15.99%

OVERSEAS SHARES

MSCI World

Price index in $A

0.03%

PROPERTY

ASX

Property Trust accumulation index

5.28%

CASH

SBC Warburg 90-day

Bank Bill index

1.97%

FIXED INTEREST

SBC Warburg Composite All Maturities index

© 2000 Sydney Morning Herald

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