Benefits and risks of a Margin Loan

 

Some of the benefits of Margin Loans:

Increase your buying power

Leverage your investments to purchase more securities than would be possible by using only the cash you have on hand. Investing using a Margin Loan is also helpful when there are investment opportunities that require a bit more cash than you have in your M1 Individual/Joint Brokerage or Trust Account. 

Stay invested even when you need liquidity 

Margin Loans offer a flexible line of credit backed by your investments helping you avoid selling your investments to meet other liquidity needs.  

Tax benefits 

Opting for a Margin Loan to address liquidity needs also helps avoid capital gains taxes on gains from selling securities. In most cases, the interest expenses can also be deducted from your investment income for tax purposes. 

M1 and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only. It is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction. 

Flexible repayment

There is no set repayment schedule if you maintain the required minimum equity.  

Quick access to credit 

You can use your line of credit at any time and for any minimum amount. Once you have a margin account (Individual/Joint Brokerage or Trust) opened, there is no additional application process or credit checks to take an M1 Margin Loan. 

 

Some of the risks associated with Margin Loans:

Market volatility 

When the value of your portfolio drops, the value of the securities acting as collateral for your Margin Loan also drop. If this drop is significant enough, it may require you to meet a maintenance margin call or pay back your brokerage entirely. 

Leverage risk 

Investing using a Margin Loan can amplify losses as well as gains. Regardless of the value of your investments, you must repay your Margin Loan. 

Maintenance Margin Calls 

If the equity in your account falls below the minimum maintenance requirement, you will have to bring your equity back above the maintenance margin requirement by either depositing funds or selling securities. The minimum maintenance requirement could also change at any time. 

Forced Liquidation 

If you fail to meet a maintenance margin call, your brokerage may be forced to sell some or all your investments. 

Increased interest rates 

Interest rates on Margin Loans are linked to the federal funds' interest rate and could increase while you have a Margin Loan, increasing your cost. 

If you have further questions, please contact us.

 

All investing involves risk, including the risk of losing the money you invest. Borrowing on margin can add to these risks, and you should learn more before borrowing. M1 Margin Loan available on margin accounts with at least $2,000 invested. Not available for all account types including M1 Traditional IRA, M1 Roth IRA, M1 SEP IRA, M1 Custodial, and some M1 Trust Accounts. Margin Loan rates subject to change.

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