THE MONEYPAPER
555 Theodore Fremd Ave., Ste. B-103, Rye, NY 10580.Monthly, 1 year, $99.

       Vita Nelson: "If you think the stock market will continue to rebound from recent lows, you may want to buy on margin to squeeze more profit.
       Margin investors use money that's borrowed from their broker, paying interest rates that are pegged to the broker's "call rate," which is listed in the daily newspapers. Currently, that rate is 2.75%. You might pay 2% above the broker's call rate, or 4.75%, or even lower rates on very large loans.
       Margin loans are backed by securities held in your brokerage account. For most securities, the maximum "initial margin" allowed is 50%: you can borrow $50,000 on margin if you have $100,000 worth of stock, bonds and mutual funds. For Treasury bonds held by your broker, the maximum initial margin is 90%.
       Although the Federal Reserve and the New York Stock Exchange set the basic regulations, each brokerage firm has its own rules on margin. As a general rule you can't use margin in tax-deferred retirement accounts.
       To see how margin can help increase your potential profits, assume you use margin to boost your holdings from $100,000 to $150,000. If your stocks go up by 20% in the next 12 months, you'd have a $30,000 gain (20% of $150,000), not a $20,000 gain on a $100,000 portfolio, Even if you paid 4.75% interest ($2,375 on a $50,000 loan), you'd have a $27,625 net gain $7,625 more than you would have had.
       After tax, the results may be even better. Interest on margin loans can be deducted against taxable investment income. In that case, your real cost of money may be only around 3%.
       Unfortunately, your stocks are not guaranteed to gain 15% or 20%, or any amount at all. When stocks fall, losses are magnified by margin loans, and when stocks fall sharply investors using margin have to face the prospect of margin calls. This can be very risky business if you are forced to sell (at unfavorable prices) in response to the call.
       Many brokers have an informal rule that a 28% drop in a 50% margin account will generate a margin call. If you use less margin, you can reduce the risk of a call. Borrow 33% and you generally won't get a margin call until your account value falls by 50%. If you borrow 20% you're not apt to get a call until there's a 70% loss of valueand you probably will have bailed out of the stock long before then.
       Using low margin levels may enable you to keep a long-term loan outstanding at a reasonable rate, aftertax, while you boost your stock market profits. If you have a $100,000 portfolio and you borrow to bring it up to say, $120,000, you'll have more market participation without much risk of having to dip into other assets to meet margin calls."