CommSec Margin Lending actively reviews all approved stocks and funds on regular basis, and from time-to-time may reduce or remove the Loan to Value Ratio (LVR) on particular stocks.
If this does occur to you and your Loan to Security Ratio (LSR) increases to a level higher than your margin call LSR, then a margin call will trigger and you will required to reduce your gearing level by either depositing cash, selling stocks, or lodging more collateral (cash or other stocks on our approved list)
Diversification with low risk companies is the key to a successful margin lending strategy. A diversified portfolio should hold at least eight stocks. Because gearing naturally amplifies risk, it is often better to choose stocks with large market capitalisations that are traded frequently – you probably don’t need to go outside of the top 200. When choosing the mix of stocks, ensure there is diversification across sectors and keep the weighting in your portfolio evenly distributed.
By applying the above gearing strategy and by not fully gearing your portfolio, then your margin loan should be able to withstand the loss or reduction of an LVR against a stock in your portfolio.
Important Information
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The views expressed in this article are those of Brian Phelps, a representative of Commonwealth Securities Limited (CommSec) ABN 60 067 254 399 AFSL 238814. Commonwealth Securities Limited (CommSec) ABN 60 067 254 399 AFSL 238814 is a wholly owned but non-guaranteed subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124 and a Participant of the ASX Group and the Sydney Futures Exchange. As this information has been prepared without considering your objectives, financial situation or needs, you should, before acting on this information, consider its appropriateness to your circumstances and if necessary, seek appropriate professional advice.
Other articles in this week’s newsletter
Buying property with positive cash flow returns
Receiving a tax refund from the tax man
SMSF strategies for low income earners
What happens if the stock that I have margin lent against falls off the approved list?
Top 10 CFD stocks for the week
Stocks & Stats to watch out for this week
