i inherited a stock portfolio primarily on margin...what can I do to protect my acct?

Question

I know little about investing

Answer 1

First off, sorry for your loss.
Having an account on margin doesn't necessarily mean anything in and of itself. If the account is fully paid for then there is no downside to having the account in margin. The securities are 100% yours in this case.
If there is debt in the account then you would want to figure out the ratio of the stocks that you own. You can do that by dividing the margin debt amount by the total account equity amount. If you owe say 1k on a 50k account the risk is minimal. But if the account is leveraged more than 25k of that 50k I'd be concerned because a drop in the securities would hurt the portfolio value. This is just a nutshell overview. If you'd like me to go into more detail drop me a line. Good luck!!

Answer 2

You have three ways to get rid of the margin risk.

The first is to sell off some of the securities and pay off the margin loan.

The second way is to buy protective puts on those stocks. That way, if the value of the stocks fall, the puts will cover your loss.

The third way is to put in a stop sell order -- so if the stock falls below a certain level, your stock will be sold at the next market price.

Since you don't know much about investing. I'd suggest the first method. Since you are only allowed to have 50% margin, selling half the portfolio will leave you fully invested, but your losses would be limited to the portfolio value.

I, too, am sorry for your loss.

Answer 3

I'd liquidate some of the assets to move it off margin... and talk to an investment broker to guide you through that process. Margin accounts are not for novices, and you could quickly get into trouble if you can't cover a margin (that is, come up with money to pay for stocks that drop in value). So, you don't want an account on margin any longer. And I recommend you change it immediately. Take it from a retired investment broker who has seen people just like you taken off-guard dealing with margin accounts. I had one myself briefly, and I just don't see the benefits for the average investor.

Answer 4

If I understand the question, you own a bunch of stocks but they are not paid for. You are in fact borrowing the money that paid for those stocks.

I would go through each stock and look at the charts and historical performance. Try to determine which ones have potential for gain and which ones are in neutral or worse.

I am assuming that since you inherited this portfolio that your basis is stepped up to the current value. That means that you will have no taxable gain to worry about at this time. Stocks that are dead or neutral should be sold.

This is not rocket science, but you should learn as much as you can about the stock market. There are lots of advice givers, but treat them all with skepticism.

Answer 5

Get rid of the margin loans as soon as possible without causing yourself too much tax.

Answer 6

Hi Amy,
If you want to protect your well-being, you need to be pro-active in getting educated in investing.

Here's a great starting point for beginners:

http://www.shareowner.com

Keep Smiling!