The easiest way to get money to invest is by buying on margin. Here,
you use your investment assets to secure a loan. However, in your
case, the fact that you do not want to put up a substantial amount
would make this tool unfeasible, as you would not meet the margin
requirements, which I outline below. Though if you were willing to
put up more, or invest less, you may be able to stay within these
limits.
Margin Requirements:
An initial margin requirement is the amount of funds required to
satisfy a purchase or short sale of a security in a margin account.
The initial margin requirement is currently 50% of the purchase price
for most securities, and it is known as the Reg T or the Fed
requirement, which is set by the Federal Reserve Board.
Ongoing margin requirements after the purchase is complete are known
as maintenance requirements, which require that you maintain a certain
level of equity in your margin account. Maintenance requirements are
set by the NYSE, NASD, and/or the brokerage firm. This continuing
requirement differs based on the riskiness of the security.
Please keep in mind, these are minimum requirements, individuals
brokerage firms may have higher standards.
Interest:
You state you want to get LIBOR +1, that is somewhere around 5.5%.
Most brokerages use margin rates closer to 10%, however many firm drop
down to as little as 5.5% if you are willing to borrow substantial
amounts (i.e. $500,000+)
Type of Investment:
I am not sure you have a clear understanding of the security you are
considering. You are saying that there is a guaranteed dividend
relating to a close-ended mutual fund. First, there really no
dividend guarantee. It really mean if the underlying companies cant
pay a dividend, it will invade principle and pay you out of that,
which means the corresponding share price will drop. Second, the
value of the underlying fund can vary with market conditions and go
down, which means that as collateral, this security may not be as
valuable to a lender as you might think.
Conclusion:
A typical bank or brokerage house would not likely lend for such a
transaction. Also, this cannot be a sure fire was to make money.
There can be no mechanism in a financial market as a sure fire way to
make money in such a fashion, and if it did, arbitrageurs would dry up
that well quickly.
There may be other avenues to consider if you?d like to try. I just
propose you proceed with caution. And of course, you may wish to test
your theory using a number of assumptions and using some past market
data to test your idea.
This is not legal or financial advice and should not be relied upon as
such. It is one man?s views. |
