Sure. You CAN get a margin loan, usually very easily with a couple of clicks, for any of your stocks. It will be a 50% loan-to-value cash piece, and you will have the freedom to invest it in more of the same stock.
Your brokerage will automatically assume you intend to buy more of the same stock in the same account. You are not expected to use a “purpose loan” like this for any other purpose than to buy more of the same stock, normally.
Your brokerage will not make any exceptions, normally, without your formal request and their formal consent.
Your margin loan will not be based on the averaged value of your portfolio, but rather on one specific stock or other security.
Your entire margin loan will be dependent on that one stock.
Should there be a dramatic fall in that stock’s price, an automatic axe falls down. There is no human intervention. There is no warning. There is no guaranteed advice beforehand to retire your margin loan on that stock and move into something else.
If your stock drops so far that even liquidating the position won’t pay the brokerage off for the margin loan they lent you, you are personally liable for any shortfall and it will be reported on your credit if you do not pay it off immediately.
Now let’s examine LeverageLine from A. B. Nicholas and its licensed major brokerage/bank lending partners.
You may not buy more stock with your LeverageLine. But you are expected to use it for anything else, and may do so freely, including real estate investments, business acquisition, paying off college tuition, and so forth.
A LeverageLine is not a “loan” in the dictionary sense, and it is not a margin loan. A LeverageLine is “non-purpose” credit in the form of a credit line the amount of which can be any amount at any time up to the maximum authorization.
A LeverageLine averages EVERY stock in the portfolio, or any selection of stocks in your portfolio that you wish to act as collateral for your line of credit. The movement of any one stock in that portfolio downwards, even dramatically, does not necessary affect the overall, averaged value of all the stocks in the portfolio.
Sure, you’d need to take some action if ALL the securities in your portfolio simultaneously fell by 40%, but you’d have been contacted by your licensed lender advisor at your lending institution well before that, in most cases, and your options would not fall upon you like an axe. You could pay down the line, and if the fall was cyclical or due to an anomaly, you could be given time to take care of it. Or you could be advised ahead of time to move out of a particular stock and into something less volatile, such as — for instance — a highly rated municipal bond that might also have a positive impact on the averaged value of the overall portfolio and allow a higher line amount.
In the relatively unlikely event — thanks to intelligent and skilled lender risk analysis — that your portfolio should completely crash overnight and the assets therein would be insufficient to cover your outstanding principal, your personal assets are not automatically at risk with LeverageLine. Your lender will take every case individually in an effort to retain you as a client, including working out alternative methods to take care of any outstanding debt. Your home, your land, etc — are not attached by default. We have carefully selected the lender advisors at the major institutions with which we’ve partnered and their priority is to retain you as a long-term client, nothing less.
So does a LeverageLine make sense? It can. And it does for many, many people. Are there risks? Perhaps it is best to ask a counter-question as part of that answer: Is there anything related to stocks that does NOT involve risk of some kind?
Find out more about our ideas on our LeverageLine website.