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In Canada we have a tax free savings account that lets you invest about 6-10k a year entirely tax free (it varies from year to year). The issue is that it does
by Kranar 5y ago
In Canada we have a tax free savings account that lets you invest about 6-10k a year entirely tax free (it varies from year to year). The issue is that it does not allow you to leverage your investment or use margin. So to get around that every year I dump my entire 7k into TQQQ and UPRO 50/50 and have done so since 2013.
I don't see why this would be a bad idea and this article seems to be fairly poorly written. In general there is nothing wrong with putting some of your capital in a tax advantaged account into a leveraged ETF. No one is suggesting to dump all your savings into it, but putting some ratio of your earnings into a leveraged ETF allows you to indirectly maximize your contributions.
I'd definitely prefer to use margin directly through my broker, it would be cheaper and less risky than an ETF, but the law is not setup to allow me to do so in the various retirement or tax advantaged accounts, so instead I use this as an alternative.
For ordinary investment I think using some leverage is smart, especially if you're younger. Take something along the lines of 2-2.5x leverage until you're in your 40s, then start scaling it back as you get closer to retirement age.
- JumpCrisscross 5y agoLeveraged ETFs, which aim to deliver leveraged intraday returns, don't mirror a leveraged position over the long term [1]. In particular, the more volatile the market, the worse the leveraged ETF's returns will be. [1] https://www.montereyherald.com/2021/06/30/steven-merrell-financial-planning-why-leveraged-etfs-may-not-be-what-they-seem/ https://www.montereyherald.com/2021/06/30/steven-merrell-fin...
- Kranar 5y agoOf course not, hence why I said I would in principle prefer to use leverage directly. But as the laws do not permit me to do so in tax advantaged accounts, leveraged funds are the next best thing. But I certainly would not use a leveraged ETF outside of such an account, it's both cheaper and less risky to use leverage directly from your broker. Do you know if U.S. retirement accounts allow the use of leverage? I am aware of Roth accounts and perhaps some other types of accounts that Americans can use that are tax advantaged. Do they allow margin accounts?
- BoorishBears 5y agoYour scheme only makes sense if you're eager to lose your shirt, so I don't know why you'd mix retirement accounts with it.
- Kranar 5y agoYes, I'm sure I'm going to lose my shirt because I invest 7k a year into a risky asset. Certainly there is no other possible way I could have other investments, including other retirement accounts, where I don't use risky assets... nor could it be that the key takeaway from my post is to put SOME of your capital into a risky asset, especially one that is tax advantaged and especially if you're younger. Of course not, clearly the takeaway from my post is to lose your shirt by taking all your money and investing it into TQQQ.
- BoorishBears 5y agoYou wasted so much energy on snark that you forgot to say anything of meaning... Common sense would tell anyone who read my comment "shirt = investment in scheme" not "shirt = every investment you ever made in every form ever" It's almost like you're insecure about how harebrained your scheme sounds.
- Kranar 5y agoYes, the term "lose one's shirt" just means losing some portion of the money you invested. It most definitely does not mean what Oxford defines as "losing all of one's possessions", or what Collin's Dictionary defines as "to lose all that one has" (https://www.collinsdictionary.com/dictionary/english/lose-ones-shirt https://www.collinsdictionary.com/dictionary/english/lose-on...), or what Investopedia explains has its origin from the Great Depression to mean: "This phrase implies not just loss, but ultimate loss. You may lose something important and precious but if you have lost the shirt off your back then you are not left with much." Of course from context anyone would see that what you meant by it was just losing some portion of ones investment. I must definitely have been too insecure to understand your point and thank you not only for clarifying your position, but making such a substantial contribution to this discussion. You clearly have a deep and nuanced grasp of finance.
- User23 5y agoThis is a huge deal. If you actually want a leveraged position on the Qs over the long term you either need to pay margin interest or deal with the overhead of rolling a properly structured call option trade. There is no free lunch to be had here. Buying at open and selling at close just isn't an effective strategy for retail traders.
- nameisname 5y agoYou can leverage the assets in your TFSA for higher margin on another account though!
- Kranar 5y agoYes but the returns on the other account are not tax free.