Comments on: Levering up your retirement account http://blogs.reuters.com/felix-salmon/2010/04/16/levering-up-your-retirement-account/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: DavidMerkel http://blogs.reuters.com/felix-salmon/2010/04/16/levering-up-your-retirement-account/comment-page-1/#comment-13776 Wed, 21 Apr 2010 04:55:06 +0000 http://blogs.reuters.com/felix-salmon/?p=3430#comment-13776 I don’t agree with Ayres and Nalebuff:

http://alephblog.com/2010/04/17/dont-buy -stocks-on-margin-unless-you-are-an-expe rt/

Nor does Roger Nusbaum, who is too kind to me:

http://randomroger.blogspot.com/2010/04/ maybe-you-can-buy-and-hold.html

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By: Ekb http://blogs.reuters.com/felix-salmon/2010/04/16/levering-up-your-retirement-account/comment-page-1/#comment-13621 Sat, 17 Apr 2010 22:21:09 +0000 http://blogs.reuters.com/felix-salmon/?p=3430#comment-13621 Rydex has had 150% and 200% (as well as -100% and -200%) levered index mutual funds for over a decade now. The expense ratios can’t beat ETFs, but once interest rates start climbing, it’ll be cheaper than borrowing on margin.

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By: HbrwHmmr http://blogs.reuters.com/felix-salmon/2010/04/16/levering-up-your-retirement-account/comment-page-1/#comment-13620 Sat, 17 Apr 2010 22:02:43 +0000 http://blogs.reuters.com/felix-salmon/?p=3430#comment-13620 >>”An ETF that consisted of long-dated, well into the money options would be better for young retail investors, but would be harder to explain than “each day we return about twice what the index does”. This may be a situation where simple marketing triumphs over substance.”

I’m a young (23) retail investor with very little liquid capital to invest. This article really caught me by surprise because I’ve always heard that, and agree with, the fact that “debt = bad”. However, I’ve additionally wondered how much of an effect the $2000.00 I have invested now in various individual stocks and an S&P 500 index fund will have on my life in the long run.

With such little money invested, I increasingly feel as though I’m “working” for the brokerage. Is there really an ETF like the one you listed above? If so, can you point me in the right direction?

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By: TwoTall http://blogs.reuters.com/felix-salmon/2010/04/16/levering-up-your-retirement-account/comment-page-1/#comment-13571 Fri, 16 Apr 2010 22:47:24 +0000 http://blogs.reuters.com/felix-salmon/?p=3430#comment-13571 It is my understanding that it is the underwriter’s obligation to disclose all factors relevant to a new security issue in something called a prospectus. But, Wall Street had no obligation to present a prospectus because these new and complex securities were being sold only to “sophisticated investors” throughout the world. GS only used marketing materials, and it is going to be very difficult for the SEC to prove any criminal case.

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By: jleonard http://blogs.reuters.com/felix-salmon/2010/04/16/levering-up-your-retirement-account/comment-page-1/#comment-13561 Fri, 16 Apr 2010 21:02:41 +0000 http://blogs.reuters.com/felix-salmon/?p=3430#comment-13561 I worry about the systemic effects of that: More leverage would (I expect) make the markets more volatile, and wipe out the savings of a number of young investors. Some other investors would do much better, but increasing the variance of the outcomes seems like more of an unfortunate consequence than a goal.

There are certainly some strategies that have similar effects, but they’re very much sophisticated-investor sorts of strategies. The proper leverage for a non-expert is no leverage at all. No leverage is frequently a good idea for experts, too.

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By: dWj http://blogs.reuters.com/felix-salmon/2010/04/16/levering-up-your-retirement-account/comment-page-1/#comment-13545 Fri, 16 Apr 2010 18:31:44 +0000 http://blogs.reuters.com/felix-salmon/?p=3430#comment-13545 More to the point, if you go down 10% and then up 11.2%, you’re back to even, while if you go down 20% and then up 22.4%, you’re not. The rebalancing is part of the problem, even aside from the increase in fees it entails; if you borrow $10 to finance $20 in equities, and that goes to $22, you need to borrow another $2 and buy another $2 in stock to keep the 2:1 ratio; similarly, you sell the stock when it drops. Buying high and selling low works poorly when the market is bouncing around a trading range.

An ETF that consisted of long-dated, well into the money options would be better for young retail investors, but would be harder to explain than “each day we return about twice what the index does”. This may be a situation where simple marketing triumphs over substance.

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By: magicrf http://blogs.reuters.com/felix-salmon/2010/04/16/levering-up-your-retirement-account/comment-page-1/#comment-13541 Fri, 16 Apr 2010 18:23:18 +0000 http://blogs.reuters.com/felix-salmon/?p=3430#comment-13541 I was a 20 something back in the 90’s bull market working in tech. I remember the margin calls that blew up a lot of my friends (I didn’t have the stomach for it). QCOM at $1000 anyone? Blodget and gang at their best indeed… The brokers at the time didn’t even bother to (margin) call, they just sold everything and in some cases stuck their customers with a bill.

Plus ca change, plus c’est la meme chose ;-)

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