This is in the Beginners Forum because i want a simplistic view on this.
If i have 100k cash and i want to put it into shares, what would be the most sensible % of leverage i should use?
I was thinking i should base it on how much interest i am willing to pay each week.
Example: i am willing to pay $100.00 per week, so perhaps should borrow accordingly? This would result in borrowing 72k at an interest rate of 6.49% (repayment varies with rate). I could either add to my existing positions, or open entirely new positions.
Here's the question: Increasing position size (adding to positions) vs. entirely new positions... Your thoughts? Guess it depends on current share performance vs. whether there are better opportunities in market. Am i starting to think like a real trader?!
In relation to money management and position size, would i base my risk limit (1.5%) on my own capital + the leveraged 72k, resulting in 1.5% risk of 172k, or would i base it on my own 100k capital only?
I've also thought is that i can use my dividend cashflow to borrow against.
Example: i am expecting 5k in dividends (pls note, this would require shares > value of 100k, 5k for hypothetical only) (based on rough estimates of previous years earnings, plus discount due to GFC) for the first half year, if the market crashed, i could technically borrow that 72K (as leverage) and buy more shares.
These are just thoughts, the sums are purely hypothetical (except the bit about max. weekly $100.00 interest repayments).
I'm just really interested to know what the conventions are (if any) with leverage and borrowing against dividends.
Your thoughts on leverage, position size using leverage and using dividends to borrow against?
All comments appreciated