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Lifecycle Investing – Investing With Leverage (Borrowing to Invest, Leveraged ETFs)

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Lifecycle Investing – Best Deal Right Now?

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? There are two options: reducing diversification, or using leverage.

References in this episode:
– Life-Cycle Investing and Leverage: Buying Stock on Margin Can Reduce Retirement Risk: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1149340
– Lifecycle Investing: A New, Safe, and Audacious Way to Improve the Performance of Your Retirement Portfolio: https://www.amazon.ca/Lifecycle-Investing-Audacious-Performance-Retirement-ebook/dp/B003GYEGK2
– Embedded Leverage: http://docs.lhpedersen.com/EmbeddedLeverage.pdf
– Why Do Most Investors Choose Concentration Over Leverage?: https://www.aqr.com/Insights/Research/Alternative-Thinking/Why-Do-Most-Investors-Choose-Concentration-Over-Leverage
– Leveraged ETF Rebalancing: An ETFdb.com Guide: https://etfdb.com/leveraged-etfs/under-the-hood-of-leveraged-etfs/
Path-Dependence of Leveraged ETF Returns: https://www.math.nyu.edu/faculty/avellane/SIAMLETFS.pdf.pdf
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39 Comments
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39 Comments

  1. Daryl A
    July 27, 2021 at 12:59 am

    Thank you so much Ben for presenting both sides of the coin and not outrightly lambasting leveraged ETFs. Absolutely love your evidence-based approach

  2. JP 72
    July 27, 2021 at 12:59 am

    Would you consider investing in rolling leap options to be a sensible way to leverage a long term portfolio?

  3. Luca Maurelli
    July 27, 2021 at 12:59 am

    Thank you so much for the valuable information. I hope my leveraged gratitude is not already priced in the common words I used. I'm not a native English speaker. 🙏🙏🙏

  4. J J
    July 27, 2021 at 12:59 am

    Man wish I had not listened to Ben. If I bought sso when this video came out a year ago, I wouldve had a 90% return.

  5. goauld88
    July 27, 2021 at 12:59 am

    This melts my brain.
    They get 2x the asset's return in one day but not in the long term?
    Why can't they borrow for longer periods than one day?

  6. Luk We
    July 27, 2021 at 12:59 am

    Hi Ben & Community, I build an Excel Tool and load it with Historical Data of different ETF Portfolios. Interest on unsecured loans is 2,8% for 96 Month. It comes with a fixed Rate. Mortages in Germany for 15 years fixed are roughly 1,5%. Unfortunatly I will move arround many times in my life and Homeowning comes with large Transaction costs here at 15%. How large should the spread be between Expected Return of the portfolio and my interest Rate be? Capital gains are currently taxed at 25% and debt is not deductable. I started with shuffling Monthly Stock Return, but I have the feeling that the Monthly Returns should be corrected due to lower interest environment. Does someone now well functioning Sites to simulate such ideas?

  7. abel
    July 27, 2021 at 12:59 am

    Can't the "negative exposure to variance in returns" be offset by some clever options trades like an iron condor? If so, why don't leveraged ETFs do this?

  8. MStar10
    July 27, 2021 at 12:59 am

    Thanks for the great video. What are your thoughts on leveraging at 4% int (td margin acct) and investing in something like Canoe EIT. UN that's yielding 10%+. Seems like a steady set of holdings and net return of approx 6%. Am I missing something? Thanks for your help

  9. axa3547
    July 27, 2021 at 12:59 am

    So I use leverage like this I use very small portion of my capital for leverage but I keep on diversified with leverage in other assets sometimes I hit stop loss but I use that again with leverage

  10. Alex Voxel
    July 27, 2021 at 12:59 am

    Another important advantage of the ETF compared to borrowed funds is that you're not going to receive a margin call

  11. Luca Stuca
    July 27, 2021 at 12:59 am

    I'm with firstrade. I have a margin account. I don't trade short. I thought that even if I have margin privileges, I could choose when to buy on margin and when to buy only from my cash balance. Instead I found out that all the trades I've been doing since I received margin privileges have been on margin. Is that how it works? or my broker messed up?

  12. Luca Stuca
    July 27, 2021 at 12:59 am

    Assuming that is best to invest when the market goes up because when the market goes down your portfolio goes down….. Then a 2-3x etf is better than a normal etf, if u are invested as the market goes up.

  13. RaVin Nola
    July 27, 2021 at 12:59 am

    I wonder if the Yale profs. factored in the „costs“ of experience in stock market. I understand the argument that leverage in early states of investment might benefit you in order to gain access to the liquidity needed to make wealth investment. But on the other hand most young investors (like myself) lack the experience to make the most efficient investments. According to a German brokerage firm about 60% of their customers trades total in a loss. Let’s assume a very oversimplified model and put the average investment age around the 40 year mark: a 40y old investor would have experienced 2 markets crash if he’d started trading with 18. Adding on top of this experience comes the knowledge from time and the correlated observations made over these 22y. A young investor lacks this kind of experience and will most likely underperform experienced traders or investors. With that in mind, would young investors still want to leverage? Losing your initial investment multiple times in young ages sounds rather behaviourally demotivating and contra productive in earning long run wealth. I hope someone takes the time to read my thought and I would love do discuss on this topic briefly!

  14. mohit sahu
    July 27, 2021 at 12:59 am

    yor ability to hold your eybrows up for long durations is phenomenal

  15. CLASSIFIED DATA - CD
    July 27, 2021 at 12:59 am

    tell us more about long short for higher risk adjusted returns at the efficient frontier, and about options portfolio too

  16. Wealth & Mindset
    July 27, 2021 at 12:59 am

    But what if you buy example 2x voo every day at the market opening and sell it at market closing. If daily returns are 2x. That means your return combined would still be 20% instead of 10%. Also even at voo falls 50% it probably will not fall 50% in a day so this way you could even survive over 50% crash while having 20% return long term.

  17. Keilan Snider
    July 27, 2021 at 12:59 am

    Would it be better to used a secured loan from a savings account or just use that cash?

  18. Louis Wilen
    July 27, 2021 at 12:59 am

    If brokerage client "Joe" buys GME and it was sold to Joe from a the account of a short seller, then Joe has GME in his account, but it was borrowed. Now Joe's broker takes Joe's GME and borrows it for another short seller to sell. Is this possible?

    In other words, is it permissible for shares that are borrowed to be sold short in sequence multiple times?

    Is this why the short interest on GME is greater than 100%?

  19. Devin Smith
    July 27, 2021 at 12:59 am

    Hi, Im Ben Felix and I run half-marathons

  20. parmesan
    July 27, 2021 at 12:59 am

    Wouldn't it be better just to invest all my money?

  21. jose parra
    July 27, 2021 at 12:59 am

    cheap stocks marked as risky… what a nonsense, you probably did not buy in 2009 when the stocks where cheap: "too dangerous, too risky, I wait until they get spensive…"

  22. Dave
    July 27, 2021 at 12:59 am

    Great video. I've been using leverage at a 2% interest rate. My leverage is 32% of my portfolio giving it room to survive a 55% drop in the stock market. I'm 33 but got started investing late in life so hoping I can use leverage as safely as possible to help catch up. Fortunately I started investing in April after the COVID selloff so as long as the market can hold it's gains I got off to a good start being up 46% in 8 months. I predominantly invested in Dividend stocks such as STOR, JPM, BAC, AT&T, Northrup Grumman and so on.

  23. Frederick0220
    July 27, 2021 at 12:59 am

    Great video! Thanks Ben. It's fine having multiple leveraged ETFs, right, like TQQQ, FNGU, TECL, and a couple ARKs?

  24. Bernard Kho
    July 27, 2021 at 12:59 am

    Hi, would like to seek for advise.
    I currently 33 years old and have the option to refinance my mortgage for 25k with 3.75% interest per annum for total of 10 years . I’m planning to go for it and invest into growth stocks . Is’t advisable?

  25. Ivan Walter
    July 27, 2021 at 12:59 am

    The perception of income generation through stock investments is peaking rapidly and markets have experienced a massive inflow of would-be trade investors but due to the complexity of the market, losses are incurred due to poor leveraging, the aim of appreciation is defeated and this is no better than gambling. Making good investments is actually a skill that takes most people many years to learn. Courses and forums might not do you much good, even the pros learn every day. My advice, find a mentor and also consider diversification because it actually helps in loss reduction. My stock investments accrue nothing less than $7k weekly courtesy of my Expert Trader Mr Carlos. With his help i've made profits of over $345,000 in the last 8 months. . Hope someone else finds this info useful to mitigate risk!. You can equally contact the brains behind my success and amazing strategies (carlosbeckhamtrading@gmail.com) if you probably need some expertise and guidance.

  26. Stefan Grabe
    July 27, 2021 at 12:59 am

    The only REAL question is, where can I borrow money?!

  27. pradeep darji
    July 27, 2021 at 12:59 am

    Great contentand explanation as usual Ben, leant lot about investing and personal finance from you video series, following you since I came to Canada almost 4 years back❤️❤️❤️
    Small query , we can use credit card(promotional balance transfer offers) 1.5% to 2.0 % per year. Very few exceptional cases, Which less expensive than traditional margin account which charges around prime(2.45%) plus 1.55% equalls to 4.00%.

  28. Crim168
    July 27, 2021 at 12:59 am

    If im making on average 8% and leverage it, thats a better rate than my creditcard interest @6%, makes sense for me to max them out?

  29. Banda MD
    July 27, 2021 at 12:59 am

    subscribed. amazing content

  30. TryllaTröllMaistre Fictitious Fables of Europa
    July 27, 2021 at 12:59 am

    $,UEC is perfect for this

  31. Samer Sarhan
    July 27, 2021 at 12:59 am

    Thanks Ben. Very helpful as usual. Can you please do one video on leveraging using LEAPS call options?

  32. Julien Lefebvre
    July 27, 2021 at 12:59 am

    If I'm ready to take on a lot of risk, what would be the issue with investing in 40% 3X S&P etfs and 60% 3X treasuries? Such as 40% UPRO and 60% TMF?

  33. Eric Walsh
    July 27, 2021 at 12:59 am

    It would be pretty great if your company could offer a product like this. Borrow up to 100% of your TFSA or your income, whichever is lower. It would be a great way to get a start to being able to actually have 2M to be able to afford your service 😉 Looking for a $50,000 loan to throw into the stockmarket, and hopefully more next year.

  34. Lion's Den
    July 27, 2021 at 12:59 am

    Great video!!!

  35. valcaron
    July 27, 2021 at 12:59 am

    I'd love to hear your thoughts specifically on the "Hedgefundie's Excellent Adventure" thread on the Bogleheads forum, where he made an investment of 60% 3x S&P 500 and 40% 3x Treasury Bonds and held it for a long period. I'm guessing this would go "splat" in a bear market that lasts too long, but I've been thinking about it a lot.

  36. Anh Nguyen
    July 27, 2021 at 12:59 am

    I come across because he is handsome

  37. joseph sanders
    July 27, 2021 at 12:59 am

    Thank you for this video. Video kind of says what i'm thinking but would never dare tell any of my family members or friends.

  38. Papa Noms
    July 27, 2021 at 12:59 am

    This is a superb video.

    I'm 20% through the book you mentioned (Lifecycle investing – 2 Yale Professors) and came to watch a video on more of the same subject while I was eating. You did an excellent job in referencing the studies and sources, and the video is well edited. I have subscribed.

  39. Mathew Staikos
    July 27, 2021 at 12:59 am

    Ben, What are your thoughts on holding leverage pairs long term, such as 2xor3x stock/bond pairs? The thought process being to willingly accepting the decay of leveraged ETFs over the long term to gain the increased returns from rebalancing. Since leveraged ETFs swing more there is greater opportunity for rebalancing.