Diversified Margin Account Strategy

4469 Views 12 Replies 9 Participants Last post by moneymusing, Oct 19, 2009

Fain

Discussion Starter · Oct 12, 2009

Hello i am a 22 year old student with around $12,000 in all with zero debt. I will begin working in 2010 around sept or november hopefully.

Here my Strategy
1. Open a margin Account with Questtrade.
2. Put $5,000 into the account borrow $5000 on margin(3.75%).

I was thinking of mostly investing in ETFs because of the diversification and low maintenance fees.

maybe $5,000 into an Canadian ETF and $5,000 into an ETF that mirrors the Broad Chinese market.

I am aware of the dangers of margin accounts and have enough in my other account to easily cover any margin calls.

My question to all you other investors out there is what do you think of this plan? My time horizon for this investment is 5-8 years.

P.S.
These are some of the Canadian ETF's i've been considering.
iShares CDN LargeCap 60 Index
iShares CDN Composite Index Fund
iShares CDN Dividend Index
iShares CDN Value Index

This is my first post on this forum

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Rickson9

· #2 · Oct 12, 2009

For making money I think your plan is terrible.

For losing money I think your plan is great.

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FrugalTrader

· #3 · Oct 12, 2009

Fain, why the short time horizon?

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Fain

Discussion Starter · #4 · Oct 12, 2009

Frugal Trader , are you saying i should extend the timeline longer to say 20 years to smooth out deviation of return. There's no reason behind 5-8 years so scratch that. Any goal in that time frame i can simply afford from my future income.

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Fain

Discussion Starter · #5 · Oct 12, 2009 (Edited)

Rickson9 said:
For making money I think your plan is terrible.

For losing money I think your plan is great.

I don't even know why you would post that. Thank you for being negative with nothing helpful.

The plan is practicing a form of "Conservative Leverage". The strategy made popular by David Talbot.

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DrStan

· #6 · Oct 12, 2009

Fain, if you are new at investing, this probably isn't the wisest approach. It took me about 10 years before feeling knowledgeable enough to go into leverage, and even then only at the extremely low borrowing rates available now, and at the depressed stock prices available last spring which were very attractive. These borrowing rates won't be around forever. I think a better solution is to gradually invest money you actually have in broad market indexes through ETFs or even index funds. There may be 101 surprises in your life before or after graduation, and you don't want to be pushed into having to sell at a loss. New investors tend to overestimate their risk tolerance. If your $12K is essentially your only asset, I would start off much slower and avoid unnecessary stress.

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leslie

· #7 · Oct 12, 2009

When you start work and supporting yourself, you will need cash for 'first and last' month's rent, furniture, a car, moving expenses to a new city with that job, etc.

You will also need an emergency fund to cover 6 months of living expenses. Stuff happens. It should be kept in near-cash and liquid.

What that boils down to is "Don't fritter away that cash or blow it on a speculation you don't know anything about". You are going to need it in a year.

Enter the common stock market slowly, carefully, and learn as you go. For example, are you not aware that right now just about everyone is completely at a loss to predict whether stocks will go up or down from here? There are strong and valid arguments to make for both positions. What makes you so sure they will go up, that you will leverage that play? There is lots to learn.

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sprocket1200

· #8 · Oct 14, 2009

Fain said:
I don't even know why you would post that. Thank you for being negative with nothing helpful.

The plan is practicing a form of "Conservative Leverage". The strategy made popular by David Talbot.

The above comment was not negative at all. it was factual and from the heart. probably some of the best advice you will ever get.

I agree with the senior members, as I am still learning, and always will be...

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Fain

Discussion Starter · #9 · Oct 15, 2009

sprocket1200 said:
The above comment was not negative at all. it was factual and from the heart. probably some of the best advice you will ever get.

I agree with the senior members, as I am still learning, and always will be...

I didn't get anything helpful at all however. Like tidbits to tweak my strategy (i.e. longer time horizons or timing strategies). Basically all I got, was wait and see, your a novice wait a bit more then tip-toe into it. Sry i guess i wanted more substance to the strategy and portfolio developement

Whatev though, i will invest $5,000 and see how see goes.

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Berubeland

· #10 · Oct 15, 2009

Dear Fain,

These are things i learned

Whatever is in don't buy it. Right now it seems to be gold and some oil.

I have small capital and want to make good money. I go to canadianwarrants.com and I buy warrants. It is complicated so make sure you understand before you buy.

I paid $4000 worth of tuition for college and spend two years learning stuff before I got my sheepskin. Be prepared to spend the same for your stock buying education.

Don't take it personally just learn.

Learn about stops and limits before buying.

Go to a website like wallstreetsurvivor.com and practice with fake money first.

And and kiss your lucky rabbit's foot and your horseshoe too

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Rickson9

· #11 · Oct 15, 2009

$5000 seems to be a fair price to lose for an education.

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humble_pie

· #12 · Oct 15, 2009

Fain wouldst thou drink the Spring of Life?
then must thou first
sweat out, whilst here upon this earth,
thy proper thirst.

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moneymusing

· #13 · Oct 19, 2009

Rickson9 said:
$5000 seems to be a fair price to lose for an education.

I have to agree with this and is why I have a $5000 "live practice" account. I've tried using practice accounts through various services but found it difficult to fully execute strategies within it but with "tuition money" on the table I've taken the lessons a lot more to heart.

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