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spwrozek posted:There is significant financial risk. Many people don't understand how it works. but surely if your investing for the long term you can have a little leverage, as a treat. if the market doesn’t go up in the long term we’re all boned anyway
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Jan 20, 2021 16:46
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spwrozek posted:There is significant financial risk. Many people don't understand how it works. And when you do understand how it works, actually considering taking full advantage of leverage makes you realize maybe you’re not as confident in your trading strategy.
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Jan 20, 2021 17:09
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Small White Dragon posted:Assuming you're hitting the max of any available match, it's really a personal preference. Personal preference assuming the 401k and the Roth cost about the same. If your workplace doesn't have any cheap 401k fund options then prioritizing a cheap Roth fund somewhere else is better.
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Jan 20, 2021 17:19
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jokes posted:And when you do understand how it works, actually considering taking full advantage of leverage makes you realize maybe you’re not as confident in your trading strategy. yeah im sure buying more of a target date fund you’d get wiped out instead of just having more money in retirement
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Jan 20, 2021 17:31
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laxbro posted:529 plans are for the wealthy. Prioritize retirement. You can cash flow or take loans out when it’s tuition time. To clarify, you are saying it's better to fund college with loans and to divert would-be college savings funds to a retirement account? I live in a state with no income tax.
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Jan 20, 2021 18:44
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The best gift you can give your children is your own financial independence. They can take out loans for their college, you can’t take out loans for food/housing in your old age. Better to fund your own retirement first, so they won’t have to take care of themselves AND you once they get their first job.
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Jan 20, 2021 19:23
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fart simpson posted:yeah im sure buying more of a target date fund you’d get wiped out instead of just having more money in retirement Leverage magnifies risk and reward equally, while also having an inherent cost. Remember that the "expected gains" are tied directly into the "riskiness" of an investment. As long as we're talking about a relatively efficient market, like the stock market, there is no way to increase gains without increasing risk. That's what leverage does: ramps up the risk, ramps up the gains. There's nothing wrong with that, as long as the underlying investment is good (gives appropriate return for risk). In that case leverage is basically neutral or good. The problem is, leverage isn't free, the cost is variable and acts as a drag on returns, and it can introduce new types of risk that don't get compensated by additional returns. This all combines to make leveraged investments categorically worse (less return for higher risk) than their equivalent non-leveraged counterparts. For an example, consider the difference in using a credit card to buy stocks against using a mortgage to buy a house. Both are forms of leverage, but the cost of an unsecured loan from the credit card company makes it all but impossible to make money from the investment, whereas the house needs only to appreciate a small amount to make money because the costs are so much lower. Or consider a game of Russian roulette where every time you pull the trigger you double your money, but there's also a one in six chance of blowing your brains out. High expected return, still a poor investment. That's almost always the problem with leverage: the more you get, the more expensive it gets to borrow money, and the higher the risk of catastrophic loss that ruins your financial future. Very smart, sophisticated investors may be able to take advantage of it, but most people aren't as smart or sophisticated as they think, so as a rule it's best to avoid leverage when investing.
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Jan 20, 2021 19:34
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So are you saying I shouldn't Yolo my entire retirement into gamestop, best buy, and ornamental gourds?
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Jan 20, 2021 20:18
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I'd sooner shift more towards equities than buy a target date fund on margin.
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Jan 20, 2021 21:24
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The Big Jesus posted:So are you saying I shouldn't Yolo my entire retirement into gamestop, best buy, and ornamental gourds? There's a "gourdian not" pun in here somewhere but I'm not on my A game today. 
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Jan 20, 2021 22:04
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pokeyman posted:I'd sooner shift more towards equities than buy a target date fund on margin. Tbf, I feel like the strategy being talked about is closer to buying bonds on margin to supplement an equity/bond portfolio. In order to make that work, you have to somehow find out how to make your leverage interest not be greater than the expected returns of your bonds. Those Modern Portfolio Theory graphs seem to assume you can get leverage at a cost of the riskless rate (the straight line connecting to the riskless rate wouldn't make sense otherwise). The only way that seems possible for an individual investor is to use some kind of derivative in a way to replicate cheap leverage, which opens up a lot of different cans of worms. If all this is done correctly, then theoretically you could match the return of an unleveraged portfolio but with less risk (or match the risk for more expected return). Do I understand correctly?
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Jan 20, 2021 22:17
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Begath posted:Tbf, I feel like the strategy being talked about is closer to buying bonds on margin to supplement an equity/bond portfolio. In order to make that work, you have to somehow find out how to make your leverage interest not be greater than the expected returns of your bonds. Those Modern Portfolio Theory graphs seem to assume you can get leverage at a cost of the riskless rate (the straight line connecting to the riskless rate wouldn't make sense otherwise). The only way that seems possible for an individual investor is to use some kind of derivative in a way to replicate cheap leverage, which opens up a lot of different cans of worms. I was assuming from context he meant to say Equines, not equities. At least that’s what I’m telling myself.
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Jan 20, 2021 22:38
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So, my wife and I may be looking at moving jobs. She just got a job offer that pays significantly more than her current job, but she wouldn't have access to an institutional 457 (which she has access to now), on the bright side:quote:401K/Pension I'm trying to figure out how that "pension" stacks up as a benefit. It seems like it's essentially an extra 29k/year, however the growth is capped at 4%/year, correct? If so, that seems not great in comparison to just a regular match, right? Am I missing something? Residency Evil fucked around with this message at 00:00 on Jan 21, 2021 |
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Jan 20, 2021 23:37
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Begath posted:Tbf, I feel like the strategy being talked about is closer to buying bonds on margin to supplement an equity/bond portfolio. In order to make that work, you have to somehow find out how to make your leverage interest not be greater than the expected returns of your bonds. Those Modern Portfolio Theory graphs seem to assume you can get leverage at a cost of the riskless rate (the straight line connecting to the riskless rate wouldn't make sense otherwise). The only way that seems possible for an individual investor is to use some kind of derivative in a way to replicate cheap leverage, which opens up a lot of different cans of worms. Maybe! I don't know what strategy was being discussed beyond "leverage". I just saw someone mention buying a target date fund on margin and it seemed to me that the goal there was "take on more risk for a higher expected return". Another way to do that without leverage would be shifting your portfolio allocation towards equities and away from bonds. Not an option if you're at 100% equities and want to buy more though.
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Jan 20, 2021 23:49
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Begath posted:Tbf, I feel like the strategy being talked about is closer to buying bonds on margin to supplement an equity/bond portfolio. In order to make that work, you have to somehow find out how to make your leverage interest not be greater than the expected returns of your bonds. Those Modern Portfolio Theory graphs seem to assume you can get leverage at a cost of the riskless rate (the straight line connecting to the riskless rate wouldn't make sense otherwise). The only way that seems possible for an individual investor is to use some kind of derivative in a way to replicate cheap leverage, which opens up a lot of different cans of worms. yes i believe you do
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Jan 21, 2021 07:33
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pokeyman posted:Maybe! I don't know what strategy was being discussed beyond "leverage". I just saw someone mention buying a target date fund on margin and it seemed to me that the goal there was "take on more risk for a higher expected return". Another way to do that without leverage would be shifting your portfolio allocation towards equities and away from bonds. im not trying to say buying a target date fund on margin is the optimal. i pulled that out as an example because it seems like this threads go to example of a safe, reliable long term investment. as an example, what if you bought a 2050 target date fund and took out a margin loan or used derivatives or something to buy 25% more of it or the equivalent. is that 25% really going to be so risky that normal people should run away screaming, or is it much more likely that you’re just getting a significant bump up in future retirement income?
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Jan 21, 2021 07:39
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fart simpson posted:im not trying to say buying a target date fund on margin is the optimal. i pulled that out as an example because it seems like this threads go to example of a safe, reliable long term investment. as an example, what if you bought a 2050 target date fund and took out a margin loan or used derivatives or something to buy 25% more of it or the equivalent. is that 25% really going to be so risky that normal people should run away screaming, or is it much more likely that you’re just getting a significant bump up in future retirement income? I think if I was a robot I'd invest with some amount of leverage? But human me is afraid of losing my job in the middle of a five year depression and having to decide whether to scrimp and save for the margin call or just say gently caress it and sell at the worst possible time. I keep thinking about it though. Especially since I don't have a mortgage.
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Jan 21, 2021 08:23
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fart simpson posted:im not trying to say buying a target date fund on margin is the optimal. i pulled that out as an example because it seems like this threads go to example of a safe, reliable long term investment. as an example, what if you bought a 2050 target date fund and took out a margin loan or used derivatives or something to buy 25% more of it or the equivalent. is that 25% really going to be so risky that normal people should run away screaming, or is it much more likely that you’re just getting a significant bump up in future retirement income? Margin costs money, and that creates a fixed drag on returns while also complicating the risk profiles of the investment. It makes very little sense in my mind to use margin in a boring "safe" investment, as you're just reducing your modest returns while ramping up some exotic risk scenarios. If you're intent on using margin, do it on investments that may net you a big return that will drown out the cost of borrowing the money. Of course, the risk gets magnifies too, but you're smart enough to only choose the best stocks, no worries there.
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Jan 21, 2021 08:59
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i also don’t have a mortgage, or kids, or any debt. exotic risk scenarios sound like a great way to write a blog post that generates 5 figgie views if it backfires. i don’t see why not. ill ask my edward jones guy on monday and get him to hook me up.
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Jan 21, 2021 09:23
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The real reason a lot of people don't use margin is the big players (Fidelity/Vanguard/ Edward Jones etc) charge 6-8% for margin. If your expected return is 7% and you're paying 6% already, that's a lot of risk for very little reward. If you want cheap margin you gotta go to IBKR. Or robinhood (lol)
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Jan 21, 2021 15:00
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My broker allows me a 1% rate up to 25% leverage and 2% up to 50% (5% after that though...) and ive still been to chickenshit to use it as theyll call the margin at 90%. Been thinking of using the margin to rebalance after market slumps etc but I still want some kind of strategy for deleveraging afterwards. e: got numbers wrong. Threadkiller Dog fucked around with this message at 16:03 on Jan 22, 2021 |
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Jan 21, 2021 15:19
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Don't read this post as an endorsement, but there are ways to get leverage without margin borrowing. For example, UPRO is a leveraged ETF that seeks to provide 3x the daily return of the S&P 500. Or, LEAP call options are a way of getting long on a stock or ETF without buying shares directly. Your broker will likely require you to be margin approved at some level to buy those products. Bogleheads has a massive thread on using UPRO and TMF as a long-term risk parity investment.
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Jan 21, 2021 15:27
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pmchem posted:Don't read this post as an endorsement, but there are ways to get leverage without margin borrowing. For example, UPRO is a leveraged ETF that seeks to provide 3x the daily return of the S&P 500. Or, LEAP call options are a way of getting long on a stock or ETF without buying shares directly. Your broker will likely require you to be margin approved at some level to buy those products. im invested in the upro/tmf thing. a variant of it. you can read this post as an endorsement. past results have the fart simpson guarantee of future returns. m1 finance also has 2% margin up to 30% or 35% of your account size. i forget the details Threadkiller Dog posted:My broker allows me a 1% rate up to 10% leverage and 2% up to 25% (5% aften that though...) and ive still been to chickenshit to use it as theyll call the margin at 50%. do it. coward. fart simpson fucked around with this message at 15:34 on Jan 21, 2021 |
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Jan 21, 2021 15:32
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pmchem posted:Don't read this post as an endorsement, but there are ways to get leverage without margin borrowing. For example, UPRO is a leveraged ETF that seeks to provide 3x the daily return of the S&P 500. Or, LEAP call options are a way of getting long on a stock or ETF without buying shares directly. Your broker will likely require you to be margin approved at some level to buy those products. You should not use products like UPRO as long-term investments. Beta slippage / volatility decay will eat your lunch sooner or later.
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Jan 21, 2021 16:20
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Wait people treat leveraged ETFs as long term investments? I feel like I've seen disclaimers on buy orders for them that they are not supposed to be used in that way.
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Jan 21, 2021 16:23
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SlapActionJackson posted:You should not use products like UPRO as long-term investments. Beta slippage / volatility decay will eat your lunch sooner or later. volatility decay bites both ways
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Jan 21, 2021 16:27
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SlapActionJackson posted:You should not use products like UPRO as long-term investments. Beta slippage / volatility decay will eat your lunch sooner or later. For anyone who doesn't know what Slap is talking about, there is over 200 pages dissecting issues like that for UPRO/TMF over @ bogleheads: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=272007 https://www.bogleheads.org/forum/viewtopic.php?f=10&t=288192
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Jan 21, 2021 16:31
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fart simpson posted:volatility decay bites both ways I'll concede that it's mathematically possible, but holy poo poo I cannot imagine betting on not just the increase in stock value over the long term, but also that it will take a specific path getting there so that the mathematical quirks of my investment vehicle don't kill me along the way.
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Jan 21, 2021 17:02
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LiterallyATomato posted:What's this thread's thoughts on 529 plans? I've got an infant and need to start saving for her college now. If you're already meeting your retirement savings goals, then 529s are probably the best way to save for college. Even better if you can get a state tax break on contributions, which depends on your state. You can use any state's plan too, and ones like NY and NV have minimal fees and offer low cost index funds to invest in. The caveat is that if your kid decides to not go to college or you save too much, then you take a pretty big hit on withdrawals (10% + ordinary income tax), though there are other options for making the money useful since you can change the beneficiary to anyone in your family at any time. So you could use it to take random classes yourself, use it for a 2nd kid or a cousin, or just save it for them to use for their kids in the future.
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Jan 21, 2021 19:13
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fart simpson posted:do it. coward.
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Jan 21, 2021 21:07
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Chu020 posted:If you're already meeting your retirement savings goals, then 529s are probably the best way to save for college. Even better if you can get a state tax break on contributions, which depends on your state. You can use any state's plan too, and ones like NY and NV have minimal fees and offer low cost index funds to invest in. The caveat is that if your kid decides to not go to college or you save too much, then you take a pretty big hit on withdrawals (10% + ordinary income tax), though there are other options for making the money useful since you can change the beneficiary to anyone in your family at any time. So you could use it to take random classes yourself, use it for a 2nd kid or a cousin, or just save it for them to use for their kids in the future. I just came here to ask about this - my friend wants to start an account for her kid but isn't sure if her kid will go to college and doesn't want a penalty if he decides not to go. Sounds like a UGMA at Vanguard is probably the right option? Although if the funds pay out dividends I guess she'll have to do taxes for the kid every year?
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Jan 21, 2021 21:19
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UGMA/UTMA have some downsides as college funds. 1. Schools and FAFSA consider them student assets, so significant funds will reduce your financial aid package moreso than if they were held in the parent's name. 2. Accounts automatically become the kid's property at the age of majority. If your friend wants to retain control of the money if the kid doesn't go to college, or maximizing financial aid is likely to be an issue, she should use an investment account in her own name.
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Jan 22, 2021 00:36
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The account automatically becoming their property at 18 sounds like a potential issue. If someone gave me a large sum of money at 18 I would absolutely have wasted it on the dumbest poo poo.
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Jan 22, 2021 01:00
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jokes posted:Wait people treat leveraged ETFs as long term investments? I feel like I've seen disclaimers on buy orders for them that they are not supposed to be used in that way. Not at all endorsing it going forward, just went through similar confusion over all the warnings about extreme risk and everything.
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Jan 22, 2021 01:37
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Martman posted:Is this any different for leveraged mutual funds rather than ETFs? Look at the history of RYVYX, a leveraged fund that aims to do 2x the NASDAQ-100. I've moved my pile out of it recently because it scares me, but since 2009 it's been a pretty amazing performer. all of the leveraged etf versions of big index funds have done well since inception
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Jan 22, 2021 02:27
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Since the US didn't collapse into a civil war, despite Trump's best efforts, now that the inauguration is over I fully funded my Roth IRA for the year and set my 401k to max out with $750 withheld per paycheck.
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Jan 22, 2021 02:34
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If that was really why you were holding off, you lost money because you timed the market. Like we constantly say here.
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Jan 22, 2021 02:43
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Nah, I just wanted to have money on hand in case poo poo hit the fan. It wasn't about a worry about the stock market tanking.
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Jan 22, 2021 02:48
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Save up for a larger emergency fund first if you spook yourself this easily.
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Jan 22, 2021 03:34
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Martman posted:Is this any different for leveraged mutual funds rather than ETFs? Look at the history of RYVYX, a leveraged fund that aims to do 2x the NASDAQ-100. I've moved my pile out of it recently because it scares me, but since 2009 it's been a pretty amazing performer. I mean it’s not that they are always bad, and strictly speaking they’re fine if you know what you’re getting into, often better performers than their less leveraged ilk especially in current years. Anyways, I always tried to avoid them for retirement because they have higher fees for obvious reasons, but also because they come with extra math. What happens if interest rates shoot up, wouldn’t their expense ratio also need to increase? Doesn’t that mean I’m kinda speculating on future interest rates? I’ll just sit on my vanguards and focus on figuring out what ratio of stocks to bonds i keep in my portfolio allocations I think.
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Jan 22, 2021 03:46
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