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Calculating the buffer

27 May 2016 |Investment strategy
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Calculating the buffer

27 May 2016 |Investment strategy

The Buffer is an allowance over and above the approved loan to value ratio or Lending Ratio to accommodate small market fluctuations without triggering a Margin Call. In most circumstances, Leveraged offers a Buffer of 10%.

How to calculate

  1. Identify all acceptable investments with a Lending Ratio applied;
  2. Calculate the Market Value of these acceptable investment; and
  3. Multiply by the Buffer percentage.
  Share A Fund B CMA Total
Market Value $35,000 $50,000 $4,200 $89,200
Lending Ratio 75% 60% 100%  
Lending Value $25,250 $30,000 $4,200 $59,450
Buffer 10% 5% 0%  
Buffer Amount $3,500 $2,500 $0 $6,000

If we assume a loan of $63,000 based on the above calculation, the margin loan would be “in the Buffer”.

The loan exceeds the Lending Value by $3,500 ($63,000 - $59,450) but this is less than the Buffer of $6,000.

However, a $66,000 loan would be subject to a Margin Call.

This is because the loan exceeds the Lending Value by $6,550 ($66,000 - $59,450), which is greater than the Buffer of $6,000.

This information is correct as at 27 May 2016.

Gearing involves risk. It can magnify your returns; however, it may also magnify your losses. Issued by Leveraged Equities Limited (ABN 26 051 629 282 AFSL 360118) as Lender and as a subsidiary of Bendigo and Adelaide Bank Limited (ABN 11 068 049 178 AFSL 237879). Information is general advice only and does not take into account your personal objectives, financial situation or needs. The views of the author may not represent the views of the broader Bendigo and Adelaide Bank Group of companies (“the Group”). This information must not be relied upon as a substitute for financial planning, legal, tax or other professional advice. You should consider whether or not the product is appropriate for you, read the relevant PDS and product guide available at www.leveraged.com.au, and consider seeking professional investment advice. Not suitable for a self-managed superannuation fund.

Examples are for illustration only and are not intended as recommendations and may not reflect actual outcomes. Past performance is not an indication of future performance. The information provided in this document has not been verified and may be subject to change. It is given in good faith and has been derived from sources believed to be accurate. Accordingly no representation or warranty, express or implied is made as to the fairness, accuracy, completeness or correction of the information and opinions contained in this article. To the maximum extent permitted by law, no entity in the Group, its agents or officers shall be liable for any loss or damage arising from the reliance upon, or use of the information contained in this article.

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