What do you do if you are not concerned with volatility, and are willing to take on even more risk than the stock market has to offer …
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What do you do if you are not concerned with volatility, and are willing to take on even more risk than the stock market has to offer …
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21 comments
Saved $250k over 10 years by living frugally and investing in different markets. Now I’m unsure what to do next, would love advice.
I don't think we here in India have leveraged ETFs as a product, although we have MTF, which is Margin trading facility, which gives you 2-4x of the money you put, to buy indices or the top 1000 stocks by market cap or stability etc.
But the issue is the 10-15% interest they charge on it annually. I think it only makes sense to use for swing trading when you have high conviction of a breakout. Otherwise in long term investing, if stocks and indices give 10-15% returns over the long term, the interest is basically wiping out your gains.
Imagine if you'd done a buy and hold 5 years ago instead of listening to this guy
I always leverage and invest in index funds. Where I'm from our investment accounts are taxed annually, but a portion of the interest on loaned money is tax deductable. So I get more expose and pay less tax.
Dividends = cash. Since when is cash irrelevant?
I’m 25 and I’ve been buying stocks since I was 15. No trading, just buying growth stocks and $VTI
Leverage would’ve been perfect for me when I really got the hang of things after 5 years of experience
My average returns have been 38% on my basket of indivual stocks
Very educational. Thank you
10:51 yes, a leverage investor has negative exposure to market volatility, and a wise investor with multiple asset classes who rebalances regularly has positive exposure to market volatility. They sell high and buy low. I am not using exposure for multiple asset classes as an argument for leverage, but it is interesting to think about the two different kinds of investors – one which uses leverage and one which has multiple asset classes, and how their reactions to market volatility our opposite.
Actually, borrowing from a credit card to invest is great, because of the 0% interest on-boarding offers. People who sign up for new cards call this trick "card churning". If you card-churn for investing, you essentially get 0% loans at a size that is relatively huge for a young person (a sizable portion of their annual salary). As long as it doesn't ruin you catastrophically in a downturn (i.e. you can actually survive total wipeout because you have positive saving rate), this is the best way to climb the financial ladder.
Hey Ben, I have a proposal, what if instead of putting it on margin all the time and resetting the leverage everyday, you would borrow a fixed $5.000 to your $10.000 to buy an index fund (let's say VT) where you are gaining almost certainly within a 10 or 15 years timeframe, then you could implement a strategy to borrow to reset the leverage every said timeframe. For example, assuming you have $10.000 and you borrowed $5.000 to invest $15.000 (Keeping things simple, we assume no interest on the money borrowed). Let's say that $15.000 has grown to $30.000 in 10 years, with $25.000 in capital and $5.000 in borrowed money. After which, then, you reset the leverage by borrowing an additional $7.500 to match the $25.000 capital after the 10 year period, giving us a total of $37.500 ($25.000 capital and $12.500 borrowed money, resetting the 50% leverage). After another 10 years, it would have grown to $75.000, after paying back the creditor, we are left with $62.500 Comparing to just having $10.000 without borrowing, it would have grown to be about $40.000. Would this be a viable strategy? Since instead of resetting the leverage everyday, we can "delay" the leverage reset by 10 years, where indexes are less volatile (Comparing a 10-year horizon to a one-day horizon). I believe this would still work with borrowing interest, provided that expected return > borrowing cost. I believe you could run a test on historical returns as well on this?; where you should be able to simulate using a 50% leverage resetted every 10 years. Thanks.
I have a CFD account and use 1:1000 leverage plus concentrate all my risk to the US30, Nvidia and China50 😅
Have you made a video about return stacking, like in NTSX ETF? What do you think about it for the long term? What are the risks I can't see?
I can’t believe he didn’t say never do it
How would the issue of time decay be practically affected by less frequent rebalances, say once per month? I'm young and currently eyeing a 1.25x leveraged global index fund, which rebalances every month. I think this could be a smart investment for retirement, but the way the fund will sell when down and buy when up makes me hesitant to commit.
Do leveraged etfs bounce back like normal ETF?
Say you invest £100 into leveraged funds and it drop to £10, will it come back, will it recover when leveraged funds recover?
What is the definition of young? 😀
Appreciate the fair and balanced explanation and including the sources was very helpful!
So leveraged ETFs are set it and forget it? You don't say.
Ben, I'm impressed with the comprehensiveness in the coverage of your topics. Types of pure leverages, leveraged ETFs, academic researches, behaviors. Conclusions you made are consistent with my knowledge on optimal portfolios for young investors. well done! One thing I'd hope is a little bit more in depth on the mathematic research around pure leverages.
I don't see how the easy leverage can be priced into the asset. The price of the 2x and 3x ETFs is mechanically derived from its underlying assets, including the price of futures. There's simply no room for the discretion needed to price in the easy leverage.
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