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Margin Access Plan

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Use Margin to Achieve Yield-Enhancing Returns

Let J W Korth & Company be your margin advisor to help you find the custodian with the best lending rates for your bond portfolio. We have made special agreements with custodians and can often offer our clients 2x leverage on a wide variety of bonds.

 

Why Margin?

People tend to think of equity investing when they think of buying on margin. However, using margin to purchase less volatile securities can be a viable option with margin rates well below the interest you can earn on bonds.

If you hold a $100,000 corporate bond paying 5% interest, which you could borrow 50% on at a total rate of 1.75%, and you could purchase an additional $50,000 bonds on loan, you would earn:

$150,000 * 5% = $7,500 Coupon interest
$50,000 * 1.75% = $   875 Margin Interest + Fees
  $6,625 Net Income

The above net income would be a $1,625 excess over the $5,000 interest on your $100,000 position. By using leverage, you can maximize your returns. Here you receive a 6.625% return on your $100,000 equity vs 5% return on an unleveraged investment.

For some clients with large accounts, this is a way to creatively finance purchases of more than just securities. It is a way to free up funds for real estate investing in income properties or to buy a home with no closing costs.

 

Why Use Us?

We are able to achieve these very attractive margin rates because we have aggregated the margin needs of our customers with the custodians. Therefore our rates are often times much lower than an individual or organization may achieve on its own.

 

How it Works

You will sign a special Margin Advisory Agreement with the Investment Advisory arm of J W Korth & Company. Korth will become a special margin advisor for your account and act as fiduciary only with respect to the margin on your portfolio, i.e., margin rates, which securities to leverage and where they are carried.

All or a portion of your account will then be moved to the custodian of your choosing.

If you are a current J W Korth customer, you will continue to purchase your bonds via your representative. J W Korth will handle the settlement for you. Also, if you participate in the program you will have access to your account online, similar to your current online access.

If you have an outside account or have an equity portfolio that you would like to convert to a bond program of this nature, a representative can create a pro-forma tailored specifically to your needs.

 

Margin Rates & Custodians

We have negotiated the following rates at two major custodians. You will be charged the margin rate charged by the custodian, plus a .25% advisory fee by J W Korth & Company. The advisory fee is only applicable to your margin balance, not to your whole account.

Custodian AFed Funds + 140bp = 1.49% + .25% Advisory Fee = 1.74% 
Custodian B - Fed Funds Tar­­get Rate + 125bp = 1.50% + .25% Advisory Fee = 1.75%

This email address is being protected from spambots. You need JavaScript enabled to view it. to see if your portfolio is a good fit for our program.

 

Margin Risks

Purchasing securities on margin involves additional risks. When you purchase securities on margin, you borrow some or all of the purchase price from the custodian. The securities purchased are the custodian’s collateral for the loan to you. If the securities in your account decline in value, so does the value of the collateral supporting your loan, and, as a result, the custodian can take action, such as issue a margin call and/or sell securities or other assets in any of your accounts held with the member in order to maintain the required equity in the account.

Using margin exposes you to certain risks which need to be carefully considered first. When you use margin in your brokerage account, you are borrowing funds against your securities which in turn gives the lender the right to liquidate any of your leveraged securities of their choosing should the market value of them decline enough to create a margin call. The lender may allow you to deposit funds within a period of time to avoid a liquidation; however, they are not required to do so and they may choose to liquidate your securities without contacting you. Consequently, when using margin you could lose more funds than you initially used to purchase the securities.

For additional information, please review the Margin Disclosure Statement.

We can offer lending rates as low as Fed Funds Target + 125 bp + 25 bp fee = 1.75%

Contact us today to see if your portfolio is a good fit for our program.

 

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