Thursday, July 21, 2016 1:05:43 PM
RE: Leveraged ETF's
As good a time as any, provided you use them appropriately. Half in 2x S&P500, half in 3 month T-Bills during the 2008/9 decline http://tinyurl.com/h9mcn5r (compared to SPY).
Do you think you can better T-Bill returns? Hmm! then if so !!!
Need to rebalance periodically to realign back to 50/50 weightings to keep things more aligned to 100% 1x. But you have the added benefit that 'cash' can be left as-is - enabling it to be 'locked up' for longer terms and likely earn a higher return in the process.
Consider if you have 60% stock exposure target and hold that as 20% 1x, 20% 2x paired with 20% cash and a further 40% in cash. Combined 20% 1x, 20% 2x, 60% cash. If AIM of whatever indicates buy $D more stock then sell $D of 1x and buy $D of 2x ... cash if left unchanged - but you've revised your stock exposure to your target level. If AIM indicates sell $D then do the opposite and sell $D of 2x and buy $D of 1x. Leaving you to lock up cash to earn a potentially higher return and add value. Depending upon where 'cash' is actually deposited/invested, if that earns 8% when T-Bills earn 0% then 50% or whatever in 'cash' might bolster total portfolio reward by 4%. Personally I'm very loose with what 'cash' actually represents and focus more upon boosting 'cash' rewards than on trying to pick better stock holdings. Ask me to pick outperforming stocks and .... nah! More likely I'd get it wrong. Target instead improving 'cash' rewards ... and with some flexibility of being able to include other assets such as small amounts of stocks, gold .... etc and there's greater potential to beat 'cash'.
The other main benefit of leveraged ETF's is that with perhaps $10,000 in 2x, $10,000 in cash, a hard/fast/large decline means that the most you can lose is $10,000 (assuming cash to be safe). $20,000 in 1x in contrast could lose $20,000.
I believe its Zvi Bodie who suggests a more extreme version of that. 90% in safe (TIPS of whatever), 10% in Options. You can level the Options to provide comparable to 100% 1x stock exposure, but your worst case loss is limited to the 10% in Options. Potential similar reward, for lower risk.
Clive
As good a time as any, provided you use them appropriately. Half in 2x S&P500, half in 3 month T-Bills during the 2008/9 decline http://tinyurl.com/h9mcn5r (compared to SPY).
Do you think you can better T-Bill returns? Hmm! then if so !!!
Need to rebalance periodically to realign back to 50/50 weightings to keep things more aligned to 100% 1x. But you have the added benefit that 'cash' can be left as-is - enabling it to be 'locked up' for longer terms and likely earn a higher return in the process.
Consider if you have 60% stock exposure target and hold that as 20% 1x, 20% 2x paired with 20% cash and a further 40% in cash. Combined 20% 1x, 20% 2x, 60% cash. If AIM of whatever indicates buy $D more stock then sell $D of 1x and buy $D of 2x ... cash if left unchanged - but you've revised your stock exposure to your target level. If AIM indicates sell $D then do the opposite and sell $D of 2x and buy $D of 1x. Leaving you to lock up cash to earn a potentially higher return and add value. Depending upon where 'cash' is actually deposited/invested, if that earns 8% when T-Bills earn 0% then 50% or whatever in 'cash' might bolster total portfolio reward by 4%. Personally I'm very loose with what 'cash' actually represents and focus more upon boosting 'cash' rewards than on trying to pick better stock holdings. Ask me to pick outperforming stocks and .... nah! More likely I'd get it wrong. Target instead improving 'cash' rewards ... and with some flexibility of being able to include other assets such as small amounts of stocks, gold .... etc and there's greater potential to beat 'cash'.
The other main benefit of leveraged ETF's is that with perhaps $10,000 in 2x, $10,000 in cash, a hard/fast/large decline means that the most you can lose is $10,000 (assuming cash to be safe). $20,000 in 1x in contrast could lose $20,000.
I believe its Zvi Bodie who suggests a more extreme version of that. 90% in safe (TIPS of whatever), 10% in Options. You can level the Options to provide comparable to 100% 1x stock exposure, but your worst case loss is limited to the 10% in Options. Potential similar reward, for lower risk.
Clive
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