Margin account is running wild with interest on Fidelity. Personal advice.

[stevesmoney2024]

Hello, I’m a new investor and started a Fidelity account about 5 years ago. The goal was to start a 401K and start a modest investment portfolio.

Recently after not looking at my account for about 2 years I noticed the margin account is going up quickly. The interest alone is about $1200 a month! My margin debt is $81,415.89 and my account value is $75,788.98. I’m confused by this.

Why have I not been margin called etc?


I understand two ways to get rid of margin are.

- Sell off stocks
- Add money to account’

Looking for advice on how to get myself out of this rut and gameplan moving forward. Should I just dump 3-5k a month into my account to pay this down? My account is 80% Alibaba and feel that it will come back eventually.

Does Fidelity have a freeze option to stop the interest from compounding?

Im so lost and feel sick to my stomach.

Its my fault for not checking this account and opening a margin account in the first place. I have no business opening a margin account as a novice investor.

Anyone who can help me develop a solid gameplan moving forward would be much appreciated.



Please advise,


"The fool and his money are soon parted"

[GoSeigen]

I understand two ways to get rid of margin are.

- Sell off stocks
- Add money to account’

Looks like you may need to do both of those. If it were me I'd close the entire account, pay off the debt, then start actually saving and investing. Your margin interest rate appears to be close to 18%pa based on the figures you've given. That's nuts. Get the monkey off your back, then you'll be able to look at the situation afresh.

Good luck.


GS
P.S. This is a UK-based forum so most participants will not be familiar with the detail of 401k accounts etc. but that should not matter to much with this query.
Also , you may want to reply fairly quickly so that you don't fall under suspicion of being a bot. I'll help you by asking how much of your own funds you have deposited in the account so far vs how much you have withdrawn? It might be painful to look but this needs to form part of your overall assessment.

[stevesmoney2024]

Thank you very much for this advice. I will pay it off asap then.

" I'll help you by asking how much of your own funds you have deposited in the account so far vs how much you have withdrawn? "

Another great question. The sad part... I dont know the exact numbers. Im goign to find out.

[GoSeigen]

Thank you very much for this advice. I will pay it off asap then.

" I'll help you by asking how much of your own funds you have deposited in the account so far vs how much you have withdrawn? "

Another great question. The sad part... I dont know the exact numbers. Im goign to find out.

Thanks for coming back. I hope when it's done you'll feel a huge load off your shoulders.

I suspect like many of us you felt that a margin account might be a shortcut to quick gains. Hopefully the actual outcome will illustrate one or two reasons why it often doesn't work out that way. I'm very much a believer in making money slowly. I target 3% net of inflation, tax and costs. That's it. Time does the rest of the work, and the conservative approach lets you sleep at night and it actually gives you options too, when really good opportunities arise. My ten-baggers have come from having the confidence to buy when things look bleak because my portfolio overall was conservative.

Good luck and welcome to The Lemon Fool, hope you hang around here to get some really good advice from other users of the site, and also for you to contribute from your own knowledge and experience, whatever that may be.


GS

[1nvest]

Looks to me, likely wrong, that you're into Alibaba at a over 2x rate (margin). Fidelity margin cost rates for 'smaller' amounts such as yours are of the order 14%. If you feel that Alibaba will rebound then just sell down the leverage element to be left with the unleveraged $75K odd amount of exposure.

Don't use margin/leverage, except where you actually can cover that yourself. 50% in 2x stock A, 50% in cash instead of 100% stock A .. because you needed a wad of cash for a while for some purpose but didn't want to reduce your stock exposure as that cash would later be redeployed back into stocks again.

Large single stock holdings are also a risk factor. Could shoot the lights out, could go bankrupt. More of a speculation than investing. For investing its better to diversify (many stocks i.e. major stock index fund) and target slower/progressive more likely OK rewards/growth.

Why Fidelity didn't flag the position/account ??? They do advise that margin accounts are for the familiar that know what they're doing and shouldn't be opened/used by others who are less familiar - but I don't know if that alone is enough to excuse them such that you may be able to pursue a avenue of having been mis-sold a product/service. Margin is more often dipped into and out of again relatively frequently, not bought and held for months/years - which should IMO have been a prompt for Fidelity to 'check' in with you and your intent/understanding.

[Lootman]

This is a UK-based forum so most participants will not be familiar with the detail of 401k accounts etc. but that should not matter to much with this query.

It might matter because one option he is considering is adding more cash. But that may not be possible with a retirement account that limits contributions. I believe that all 401-K contributions go through payroll and are capped.

I would have thought that margin was not allowed for a long-only retirement account, but evidently I am wrong about that. Apparently it is possible to borrow cash from a 401K but I would not have thought that was a sound idea.