Example of a Self Funding Leveraged Portfolio
For a South African Resident - updated for market conditions as at Dec 2012.
The example below illustrates borrowing approximately 30% more than your initial investment. This borrowing is facilitated using a margin loan (this is a loan that uses your shares as collateral). As a conservative investor this is a safe limit bearing in mind that dividends could be reduced and interest rates fluctuate.
The plan is to stabilize the loan and let the extra capital work for you. My job is to find companies that produce stable rising dividends that increase the positive cash flow of the portfolio over the long term.
| Amount invested |
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R 2,000,000 |
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| Initial fee (3.50% once off for setup) |
R 70,000 |
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International |
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Margin |
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Equity |
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Income/
Expenditure |
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Shares |
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Loan |
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(interest only) |
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| Invested Offshore |
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R 2,600,000 |
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R 600,000 |
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R 2,000,000 |
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| Dividend Yield on foreign shares |
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6% |
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| Interest rate on margin loan |
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1.6% |
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| Dividend income @ 6% |
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R 156,000 |
Foreign withholding taxes on dividends (15%) |
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R - 23,400 |
| Margin loan interest @ 1.6% |
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R - 9,600 |
| Gross profit |
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R 123,000 |
| My annual fees (1.00% of the equity, assuming a 10% increase in the equity) |
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R - 22,000 |
Net Profit prior to SA tax per annum. |
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R 101,000 |
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| Potential capital appreciation pa on R 2.6M |
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10% pa |
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R 260,000 |
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| Potential capital appreciation pa on R 2.0M |
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10% pa |
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R 200,000 |
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Additional capital gain due to leverage |
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R 60,000 |
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Additional Annual Cash flow due to leverage |
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R 21,000 |
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Total extra cash due to leverage prior to SA tax |
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R 81,000 |
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One can claim a tax credit locally on foreign dividend withholding taxes.
Long term bull markets (rising markets) are a certainty as long as we assume the world is a going concern but short term bear markets (falling markets) are an
uncertainty. We must not allow our fear of bear markets to prevent us making good investments over the long term. Overseas institutions may advance up to 50% of the value of the approved shares as a margin loan.
International interest rates are lower for margin loans than in South Africa. By using overseas borrowing facilities we can safely increase the investment by approximately 30% thus a R2 million offshore investment effectively becomes R2.6 million invested offshore.
For more details about the S.I.S. investments please go to: www.globalcpi.com
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