Margin Accounts Rip Off Retail Investors

As an investor, every once in a while something surprises you and makes you feel like a complete idiot. Just yesterday, going through my accounts, I noticed an interest charge which seemed a bit high. At first I thought it must be quarterly, but its every month. It would seem that an asset-backed loan like margin should be fairly cheap, like a bit over fed funds, but it never occurred to me that it would be more expensive than many credit cards.

Even worse, this rate is not really tax deductible.

Basically, unless you are rich enough to own crazy expensive homes that charge you more than $13,850 in annual interest expenses, you are not itemizing your taxes and you won’t get a margin interest deduction.

Most people are in the bracket where 25% of additional income is taxed federally, and in a state like California there is another 10% tax for the state. Add in the flat payroll tax from social security/medicare/medicaid at 10% and the unemployment insurance at 6% and that leaves you with only 49% of your hard-earned income from actual work. Then theres the payroll tax your employer pays for you but you don’t see, sales taxes, etc – its infuriating. That’s beside the point though, most of that extra tax is only charged for actual labor not capital gains or interest, so that leaves you with a 35% tax rate on your short-term capital gains.

If you purchase anything on margin, then you have to make a gain of 14.25% x 1.35 = 19.25% just to pay the broker and the government and break even. That’s one heck of a hurdle rate.

Anyway, I’m going to get my margin back to zero quickly, and possibly cancel the margin account. I’ll set my credit cards to minimum payment for a while (they’re cheaper) and sell some things off.

I didn’t trade anything last week, its been choppy. I tried to sell more covered calls on mining shares but my price wasn’t hit.

Here’s where my portfolio allocations ended up.

• HEDGES (7.0%)
  • TLT calls (5.5%)
  • AAPL puts (0.5%)
  • LEN puts (1.0%)
• PRECIOUS METALS (42.6%)
  • AG w/ cc (6.2%)
  • EQX w/ cc (5.0%)
  • MTA (5.1%)
  • SILV w/ cc (4.7%)
  • LGDTF (3.3%)
  • SLVRF (3.5%)
  • SAND w/ cc (2.6%)
  • MMNGF (2.7%)
  • MGMLF (1.8%)
  • SSVFF (2.1%)
  • BKRRF (1.5%)
  • RSNVF (1.5%)
  • DSVSF (1.5%)
  • HAMRF (1.1%)
• URANIUM (26.5%)
  • CCJ w/ cc (3.8%)
• DNN shares (3.3%)
  • DNN calls (1.8%)
  • UEC (3.3%)
  • UUUU (3.9%)
  • BQSSF (3.9%)
  • UROY (2.8%)
  • EU (1.7%)
  • LTBR w/ cc (1.8%)
• BATTERY METALS (11.7%)
  • NOVRF (5.4%)
  • SBSW (4.5%)
  • EMX (3.1%)
  • PGEZF (1.9%)
• CANNABIS (9.9%)
  • AYRWF (0.5%)
  • CCHWF (0.6%)
  • CRLBF (1.2%)
  • CURLF (1.3%)
  • GTBIF (2.4%)
  • TCNNF (1.3%)
  • TRSSF (1.2%)
  • VRNOF (1.6%)
• OTHER TRADES (6.1%)
  • DOCN cloud computing, w/ cc (2.2%)
  • XRP crypto token (4.0%)
• CASH (-6.9%)

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