When I logged in to check my monthly EOM IBKR account position, I was notified that there was an offer to increase individual account margin loan limit from $50K to $150K. I decided to accept the increased limit as I plan on eventually using this account (when I am 67) to invest 'cheap' money I get loaned by the Australian government via the Home Equity Access Scheme (HEAS) - which which will lend up to 150% of the Age Pension amount to Australian property owners at a very attractive interest rate (currently 3.95%pa.
I initially setup my IBKR account with a deposit of $50K and initially purchased about $67K of VVLU and VDAL on 1/7/2025 using about $16K of margin loan. This was an approximation of what my annual investment plan will be once I start adding an annual amount using a HEAS loan from age 67 onwards. [I then bought a small amount of PLTR stock (10 shares) on margin for fun]. Total current holdings value is currently $75,619 with an outstanding margin loan balance of about $19,142.
Currently 'buying power' is $52K (if I bought more srocks entirely on margin -- not a good idea), and the 'available funds' is $7,816 (max cash I could withdraw from the account without getting a margin call).
I don't plan on making any further trades in my IBKR account until I can start adding the HEAS loan cash to make additional investments from age 67. So far the total margin loan interest charged was $701.57 (capitalized to the loan balance) while the dividends received was $834.41. So the dividend income is just about matching the loan interest (so 'neutrally geared' overall) and the LVR is a fairly conservative 25.32% (at the current market valuation). So minimal net taxable income (if any) and likely no need to add cash (barring a major market crash).
The increased margin loan limit of $150K will be very useful when I want to start investing the annual 150% of Age Pension (currently $46K pa) and continue to use a modest level of gearing (about 25%). This should mean adding about $10K pa to the margin loan balance. Under the previous $50K loam cap this would have meant hitting the loan cap after only a few years, Under the new cap I should be able to invest my HEAS annual loan with 25% gearing for a decade or more.
Of course using borrowed funds to invest is risky. And then using 'double gearing' by also using a margin loan is especially risky. But overall the strategy seems quite attractive -- I will be investing a total of around $56K pa (of 'OPM" - Other People's Money) in VDAL and VVLU. While the VDAL ETF is new, the relevant benchmark performance for past 10 years in 12.03%pa. And VVLU 5-year performance is 14.32%. So over a 10-year or more holding period a 10%pa ROI seems plausible (but no guarantees...)
With an annual investment (using HEAS + ML) of $56K the interest costs should be around:
$46,000 @ 3.95% = $1,817
$10,000 @ 6.105% = $610.50
total interest $2427.50 = avg 4.34%
So I'm hopeful that over a 10-20 year investment period the ROI is quite likely to exceed the borrowing costs. I any case, the maximum debt (HEAS + ML) after ten years would be around $600K, with most of it a 'non-recourse' loan secured against existing real estate holdings, not repayable until my death, and with a 'no negative equity' guarantee. If things work out I would likely start to sell off some of the investment in my 90s to initially pay off the margin loan, and then pay down the HEAS balance. My taxable income is likely to be quite low, so CGT on annual tranche sales would likely be minimal.
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