4 ms·

if individual investors bought the S&P with leverage, they would retire in 10-15 years. But the money management industry keeps people in these terrible portfol

if individual investors bought the S&P with leverage, they would retire in 10-15 years. But the money management industry keeps people in these terrible portfolios

paxys 3y ago
> if every individual investor bought the S&P with leverage, they would retire in 10-15 years If you cherry-pick a specific period, sure. With that perfect foresight everyone can retire in a year, let alone 10-15.
- teaearlgraycold 3y ago
  Well, anyone. Not everyone.
toomuchtodo 3y ago
Most target date funds are invested up to 80-90% in equities early in their life, with the remainder being bonds and short term (cash) investments. The re-allocation to bonds as the target date is approached (at which point the fund converts to a terminal income fund) is to reduce equity volatility and sequence of return risk (ie maximize growth exposure when it can be tolerated, reduce exposure as risk tolerance declines due to approaching income need). We'd all like to capture maximum risk adjusted returns, but compromises must be made depending on your desired outcome and constraints.
- ldjkfkdsjnv 3y ago
  This is too conservative and isnt helping people, you will work for your whole life with this investment plan and a regular income
  - toomuchtodo 3y ago
    Neither is having a portfolio take losses you can't tolerate unless you die and someone inherits it (with recovery happening while they're holding it). If the problem is that investors don't have enough cashflow over their working years to assemble a balanced portfolio that will comfortably carry them to death, that is a different issue. Reaching for risky yield is a lottery ticket. If you maximize equity exposure too high, too long, you will potentially get blown out of the water. Broadly speaking, at some point, gains must be locked in and invested somewhere less risky (assuming your average person investing to retire). https://archive.nytimes.com/screenshots/www.nytimes.com/interactive/2011/01/02/business/20110102-metrics-graphic.jpg https://archive.nytimes.com/screenshots/www.nytimes.com/inte... https://archive.nytimes.com/www.nytimes.com/interactive/2011/01/02/business/20110102-metrics-graphic.html https://archive.nytimes.com/www.nytimes.com/interactive/2011...
yes_man 3y ago
That’s a diluted version of the logic that if we just printed out 10 million for each citizen, then everyone could quit their job and live rich, but the system somehow wants to keep people miserable and prevents this.
IncreasePosts 3y ago
Save for all those universes where due to leverage your investment goes to zero. Anyways, go ahead and put 100% of your portfolio in XXXX.P, and enjoy your retirement in 2034!
- ldjkfkdsjnv 3y ago
  basically impossible if you stay 3x and below
  - IncreasePosts 3y ago
    Why isn't everyone dumping their money into SPXL then? What percentage of your portfolio is leveraged s&p?
Thrymr 3y ago
> if every individual investor bought the S&P with leverage You could also go broke! (or at least significantly underperform historical averages.) Sure, you can make higher returns by taking more risk. That's not most people's tolerance in a retirement portfolio. There are plenty of other ways to diversify besides a 60-40 portfolio that are a lot lower risk.
- ldjkfkdsjnv 3y ago
  Most people arent educated on how leverage isnt that scary, whats scary is working a job for 50 years
  - mikestew 3y ago
    If you don’t want to work a job for 50 years because your portfolio got blown out, don’t buy stocks on margin. At least that’s what people who have been “educated on leverage” do.
  - jltsiren 3y ago
    What is scary is living in a society, where doing something productive most of your life is undesirable.
nuclearnice1 3y ago
A slight over simplification, for example s&p was negative 1% per year from Jan 2000 to Dec 2009. Plus the cost of your leverage. But the general point that US equity returns have been good and leverage would have increased them stands. For some reason, Americans are “told” to get 4x leveraged to the real estate market but to pay for their equities with 100% cash.
- toomuchtodo 3y ago
  > For some reason, Americans are “told” to get 4x leveraged to the real estate market but to pay for their equities with 100% cash. Your mortgage is fixed for 15-30 years (depending on mortgage product), and your real estate cannot be margin called (unlike securities which are constantly fluctuating in price). Edit: Over leveraging on margin to buy equities? Not great. Borrowing against real estate equity to invest in equities, with rent comfortably covering the debt servicing? Potentially not as bad. TLDR Manage your risk exposure appropriately.
  - traviswingo 3y ago
    This reply cannot be understated. Those who are strong advocates for highly leveraged equity positions who use real estate to justify either have yet to experience a true market decline, or are simply really green to investing. If I could leverage 4:1 on the total market index using a fixed 30 year loan without the ability to force a sale I would in a heartbeat. Unfortunately, that’s just not how it works. And anything claiming to be the solution to that (like a leveraged ETF such as UPRO), suffers from volatility decay that causes it to underperform or eventually go to zero in horizontal markets (e.g. lost decades).
- perplexion 3y ago
  Because if your house goes underwater, you keep living in it for years until it recovers and grows. With leverage on equity you get margin called during drops that kill your investment and give you no capture of future recoveries.
- ldjkfkdsjnv 3y ago
  Yup. You cant get margin called on a mortgage, but theres clearly an optimal S&P leverage ratio, and its far above 1. Wild how repulsed americans are by this, when they really could retire much younger
ta1243 3y ago
If every investor bought Bitcoin with leverage and started say 5 years ago they'd be retired now Doesn't make it a good strategy.
madcadmium 3y ago
How much leverage though?

if individual investors bought the S&P with leverage, they would retire in 10-15 years. But the money management industry keeps people in these terrible portfolios

paxys 3y ago

> if every individual investor bought the S&P with leverage, they would retire in 10-15 years If you cherry-pick a specific period, sure. With that perfect foresight everyone can retire in a year, let alone 10-15.

teaearlgraycold 3y ago
Well, anyone. Not everyone.

toomuchtodo 3y ago

Most target date funds are invested up to 80-90% in equities early in their life, with the remainder being bonds and short term (cash) investments. The re-allocation to bonds as the target date is approached (at which point the fund converts to a terminal income fund) is to reduce equity volatility and sequence of return risk (ie maximize growth exposure when it can be tolerated, reduce exposure as risk tolerance declines due to approaching income need). We'd all like to capture maximum risk adjusted returns, but compromises must be made depending on your desired outcome and constraints.

ldjkfkdsjnv 3y ago
This is too conservative and isnt helping people, you will work for your whole life with this investment plan and a regular income
- toomuchtodo 3y ago
  Neither is having a portfolio take losses you can't tolerate unless you die and someone inherits it (with recovery happening while they're holding it). If the problem is that investors don't have enough cashflow over their working years to assemble a balanced portfolio that will comfortably carry them to death, that is a different issue. Reaching for risky yield is a lottery ticket. If you maximize equity exposure too high, too long, you will potentially get blown out of the water. Broadly speaking, at some point, gains must be locked in and invested somewhere less risky (assuming your average person investing to retire). https://archive.nytimes.com/screenshots/www.nytimes.com/interactive/2011/01/02/business/20110102-metrics-graphic.jpg https://archive.nytimes.com/screenshots/www.nytimes.com/inte... https://archive.nytimes.com/www.nytimes.com/interactive/2011/01/02/business/20110102-metrics-graphic.html https://archive.nytimes.com/www.nytimes.com/interactive/2011...

yes_man 3y ago

That’s a diluted version of the logic that if we just printed out 10 million for each citizen, then everyone could quit their job and live rich, but the system somehow wants to keep people miserable and prevents this.

IncreasePosts 3y ago

Save for all those universes where due to leverage your investment goes to zero. Anyways, go ahead and put 100% of your portfolio in XXXX.P, and enjoy your retirement in 2034!

ldjkfkdsjnv 3y ago
basically impossible if you stay 3x and below
- IncreasePosts 3y ago
  Why isn't everyone dumping their money into SPXL then? What percentage of your portfolio is leveraged s&p?

Thrymr 3y ago

> if every individual investor bought the S&P with leverage You could also go broke! (or at least significantly underperform historical averages.) Sure, you can make higher returns by taking more risk. That's not most people's tolerance in a retirement portfolio. There are plenty of other ways to diversify besides a 60-40 portfolio that are a lot lower risk.

ldjkfkdsjnv 3y ago
Most people arent educated on how leverage isnt that scary, whats scary is working a job for 50 years
- mikestew 3y ago
  If you don’t want to work a job for 50 years because your portfolio got blown out, don’t buy stocks on margin. At least that’s what people who have been “educated on leverage” do.
- jltsiren 3y ago
  What is scary is living in a society, where doing something productive most of your life is undesirable.

nuclearnice1 3y ago

A slight over simplification, for example s&p was negative 1% per year from Jan 2000 to Dec 2009. Plus the cost of your leverage. But the general point that US equity returns have been good and leverage would have increased them stands. For some reason, Americans are “told” to get 4x leveraged to the real estate market but to pay for their equities with 100% cash.

toomuchtodo 3y ago
> For some reason, Americans are “told” to get 4x leveraged to the real estate market but to pay for their equities with 100% cash. Your mortgage is fixed for 15-30 years (depending on mortgage product), and your real estate cannot be margin called (unlike securities which are constantly fluctuating in price). Edit: Over leveraging on margin to buy equities? Not great. Borrowing against real estate equity to invest in equities, with rent comfortably covering the debt servicing? Potentially not as bad. TLDR Manage your risk exposure appropriately.
- traviswingo 3y ago
  This reply cannot be understated. Those who are strong advocates for highly leveraged equity positions who use real estate to justify either have yet to experience a true market decline, or are simply really green to investing. If I could leverage 4:1 on the total market index using a fixed 30 year loan without the ability to force a sale I would in a heartbeat. Unfortunately, that’s just not how it works. And anything claiming to be the solution to that (like a leveraged ETF such as UPRO), suffers from volatility decay that causes it to underperform or eventually go to zero in horizontal markets (e.g. lost decades).
perplexion 3y ago
Because if your house goes underwater, you keep living in it for years until it recovers and grows. With leverage on equity you get margin called during drops that kill your investment and give you no capture of future recoveries.
ldjkfkdsjnv 3y ago
Yup. You cant get margin called on a mortgage, but theres clearly an optimal S&P leverage ratio, and its far above 1. Wild how repulsed americans are by this, when they really could retire much younger

ta1243 3y ago

If every investor bought Bitcoin with leverage and started say 5 years ago they'd be retired now Doesn't make it a good strategy.

madcadmium 3y ago

How much leverage though?