Wednesday 12 January 2011

A Belated attempt to KISS

When the markets were booming it seemed to make sense having three separate margin loan accounts, plus other broker accounts for training US stocks, options and CFDs with Commsec. Post-GFC the principle of KISS (Keep It Simple, Stupid!) has a lot going for it. So I continue to slowly rationalise my stock and fund portfolio...

Today I sold off my holding of IANG [IAG FINANCE (NZ) LTD] as I'd made a reasonable gain and there were little prospects of further price appreciation with the stock trading around $104 for what is basically a company debenture with a face value of $100. Although the yield is fairly attractive it didn't make sense to keep owning this stock when I'm paying almost 10% margin interest. I also put in an order to sell off the last of my direct US share investments (220 shares of Microsoft), as the potential gains aren't worth the paperwork hassles and account keeping fees of having a US trading account through Commsec. As soon as the trade settles and I transfer the balance of the account back to Australia I close this account down. Again, the dividends flowing from this stock were negligible, so I'm better off using the proceeds to reduce my Australian margin loan balances a bit. I'll also sell of the two varieties of Westfield stock (that resulted from the recent Westfield demerger). I'd also like to get rid of the tiny tranche of AEJ [ALINTA ENERGY GROUP] shares I ended up holding when one of the Babcock & Brown funds was wound up, but the cost of the share trade would be more than the proceeds! So I'll have to wait until I get an offer for some free stock trades from Commsec.

After this pruning is finished, my stock and fund investment portfolio (outside of superannuation) will be:

The total value is around $450,000 which will be about the same as the total outstanding loan amounts (including the $235,000 HELOC used to fund some of the investments that have 0% margin value). As the overall interest rate is about 8%, the total return (dividends plus any capital gains) isn't likely to produce much net return. At best, it produces a modest tax benefit by deferring current income tax (as the amount by which the tax deductible margin loan interest exceeds the dividend income is deductible against my salary income) and creating a long-term capital gain tax liability, with long-term capital gains being taxed at half my marginal income tax rate. The potential benefits hardly outweigh the amount of complication added to my tax returns, so as soon as the OMIP and Macquarie equinox funds reach their maturity date (when their capital guarantees kick in and I can get my initial investment back!) I'll use the proceeds to pay off some of the margin loans rather than reinvest.

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