Investing With Leverage (Borrowing to Invest, Leveraged ETFs)

[@mohitsahu4647]

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

[@TheAvtrey]

I'm dead hahahahahaha!

[@WPaKFamily]

your*

[@alexhetu6242]

😅😂

[@zacharyscott387]

This can't be unseen

[@k24hybrid]

😂😂😂😂😂😂

[@thestrappingentrepreneur2822]

Holy crap the first non biased view on leverage omg

[@andreasisaakme]

True!

[@chriswantstomakeit]

You need to be high risk when you are young, obvious isn't it? When are you going to do it, when you are 55? I am wary of a depression though.

[@thestrappingentrepreneur2822]

Agreed I use leverage but I don’t use margin

[@thinstitute]

Who cares about drawdowns? Pros and pessimists only look at short term incidents, and advise against this to cover their asses. Over the very long-term, such leveraged ETFs return much more if you can focus on what you started with, and not what you've gained, or how little you gained over the short term. People panic because they don't remember or record their initial investment (lose track of initial amounts and/or don't keep track of long-term charts, etc.). As long as you pick ETFs that have returned fairly steadily over the long-term (i.e: NASDAQ 100 and S&P 500), you just have to hold on and always remember your initial amount, and not what you have at the present time, because that will change and/or go down drastically. If you're making monthly contributions, chart those as well, and prediction charts over the long term. And you'll see that you'll end up a winning over 7, 10, 15, 20 or even 40 years. We're all "short-term" creatures and it's why this looks scary and always has such warnings by advisors in order to cover their asses. Personally I prefer 2x (QLD) over 3x (TQQQ), my heart can only handle so much! And the 43% yearly long-term return with QLD (over the last 10 years, even through major pandemic crash) is certainly adequate. HQU is the Canadian version of QLD. For Canadians, use the WealthSimple broker (WealthSimple.com) which charges 0% commission on all trades. It's great. Use code UEE9DA to get $10 free from WealthSimple when you trade 100$ or more. Best broker for Canadians!

[@MStar10]

@@chriswantstomakeit what's not so obvious is for a youngster to use leverage - which is the point of the vid. There many ways to take on higher risk. I think borrowing to invest is not talked about enough.

[@Málaguay]

dave ramsey has left the chat

[@superflyp0]

Brent Ross ahh haha

[@Thurgor_Supreme]

Dave is great for getting debt junkies out of debt, but he's a con artist when it comes to investing advice.

[@Málaguay]

Thurgor Supreme well if you had leverage you sure are feeling it now lol

[@itsatrap7215]

@@Málaguay Depends. You can use a 3x leverage account but only invest 1/3 of your equity in it to receive similar returns as 100% in equity without risking as much capital. Very contingent on how people are using it.

[@utkarsh12]

@@Thurgor_Supreme yeah i saw one his videos where he was yelling for 10 minutes straight about being frugal. Can't take advice from someone who can't talk like a normal person

[@daryla1019]

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

[@HamiltonRb]

Speaking of concentrated leveraged investing, I always try to keep my Vanguard portfolio as far away as possible from my Caesars Palace portfolio I call it my sleep at night portfolio.

[@oGrasshoppero]

Have been holding long on 3X leveraged ETFs since 2009. I retired in 2021 at the age of 43...thank you leverage.

[@commonsense-og1gz]

did you dollar cost average, or did you follow some other process?

[@oGrasshoppero]

@@commonsense-og1gz I used my own "weighted" dollar cost averaging approach through my most recent buy into SOXL maxing out in Oct 2023. Basically divided all my cash into 52 equal parts with a schedule to buy in once a week for a year. However, if the price was lower than the previous week, I bought twice as much as the previous week. If the price was higher than the previous week, then I would reset the amount back to scheduled allotment.

[@melon9440]

@@commonsense-og1gz i bet its selling and buying when time calls.

[@commonsense-og1gz]

@@melon9440 probably. i have heard that people buy and sell based on the 200-day moving average, so it does strike me as impossible.

[@smouldering]

Nice. As someone else has asked. Did you DCA or was it a big lump sum invested? How much did invest?

[@clockywork]

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.

[@napalm8030]

I did simulations on 10 different 3x leveraged ETFs over 10 year periods, including purchasing in 2007, and as long as you didn't sell during a large correction, the returns always outperformed their unleveraged counterparts, and usually to an astoundingly large degree. This is very interesting and tempting findings for me, as we eventually move forward from this current pandemic in the future..

[@BenFelixCSI]

Simulations or observing 13 years of past data? The market has had an unprecedented rise since 2007 in terms of returns and risk-adjusted returns, so looking at leveraged ETFs over that period could be misleading. In a volatile or down market leveraged ETFs could be ugly.

[@napalm8030]

@@BenFelixCSI Right yes. Sorry, historical data. I did calculations of 5 to 10 year returns based on purchasing them since their inception, and they outperformed even when one bought them at the worst possible time, right before the financial crisis. We had had an unprecedented bull run yes, but it seems if one could stomach the volatility, assuming the fund doesn't get wiped out or anything, one could do quite well. I'm not saying someone should go 100% into a 3x leveraged semiconductor ETF, but a small sized portion of capital allocated, after a large pullback like we have seen, into a leveraged S&P 500 ETF looks like it actually could be quite promising.

[@mephistomdc6476]

@@BenFelixCSIrisk adjusted return is bullshit idiot i became a millionaire due to leverage etfs I average on the down with qld and I try to buy upro when spy breaks 200 day moving average and some gold crosses . This idiot just sites academia like an idiot hedge funds on average beat the market before fees . Top 50 funds outperform after fees long term before fees the number is crazy ex, de shaw average roi net of fees is 15 and it charges 3-30 befor fees is like 25-27 percent plus for class a shares . Ben is just not educated enough in finance . Hell I bet he doesn’t have access to high tier prime brokers like ubs Neo etc . He just sites broke dumb professors who can’t even afford a Bloomberg terminal and credible education management system . I beat the market every year . It’s easy it’s just difficult when you mange 100 million plus because of slippage wide spreads etc even with block orders there is no such thing as arbitrageurs professors are just broke and stupid

[@sdzbwxp]

Tax can play a big part in leverage investment. Say a home owner makes good employment income, and is at 50% marginal tax bracket. He can borrow against his home equity at 4%. Given the interest is tax deductible, the effective cost of borrowing is only 2%. I agree that the key is to stay invested for a long period of time.

[@ildefonsovilar]

That's how i build two solid portfolios. A growth/ tech portfolio and a DGI portfolio.. using leverage. I'm so grateful for the access to margin...

[@TheMrMikeo]

Mate you just kill it! Such articulate and researched work!

[@mangoh69]

Ben, you are hands down the greatest finance / investing expert on KZbin. Thanks for the accessible videos that still have a great amount of breadth. Always appreciate the reference to academia / empirical studies as well. If I lived in Canada and not the US I’d definitely retain you and your firm’s services because of these videos - savvy business move!

[@TheTuTuTurtle]

Ben, I'm impressed with the comprehensiveness in the coverage of your topics. Types of pure leverages, leveraged ETFs, academic researches, behaviors. Conclusions you made are consistent with my knowledge on optimal portfolios for young investors. well done! One thing I'd hope is a little bit more in depth on the mathematic research around pure leverages.

[@Lysergesaure1]

Futures contracts usually are the cheapest way to increase gearing. Very good liquidity and the interest rate is baked into the price, usually closely follows the 3-month rate.

[@BenFelixCSI]

If I were to use leverage in my personal portfolio I'd be deciding whether to use margin or futures. The downside of futures is that I could not get exposure to my current portfolio (which I have deemed to be optimal for me). That would be an important compromise to consider. If I use margin I can maintain exposure to the assets that I want.

[@arthurobrien7424]

As someone who is decades away from retirement, this is really interesting to know. Wouldn't go all in with my knowledge, though.

[@CanaldoHolder]

Another great video! 🚀🚀

[@BenFelixCSI]

Thanks Fabio!

[@Geronimo122]

I've owned QLD, a 2X leveraged ETF based on the NASDAQ 100, for OVER 10 years. I bought in at $6.60... and the current price is $120.50 (three 1:2 splits over that period). I'm not great at math (or investing for that matter), but by my calculations the return over that period is something like 1,725%. I also, bought the non-leveraged version of the same index, QQQ around the same time (actually, just checked and it was two years prior in October, 2008). That's only produced a 562% return from my calculations. Confusing, but the difference would appear to be down to the splits. Without them, the 2X leveraged version returns would be comparable to the base ETF I guess. So, about the same return over the long haul, but with the added risk of leverage-- thank God for stock splits??

[@BenFelixCSI]

Very interesting. It has been a decade of record low volatility and record high returns (combined, record high risk-adjusted returns). It would be in a volatile market that the time decay of the levered ETFs could work against you. In any case, you got a great outcome!

[@TheSteinbitt]

Legend has it, that this was the last video Bill Hwang ever watched on YT.

[@domenicomartistocks]

Leveraging can definitely be very dangerous if your investments do not go as planned as you will likely receive margin calls if the stocks you purchase decrease in value. Also, using margin theoretically is like putting a timer on your investments since the longer you hold the investment for, the more money you will be paying in interest and the lower your return on investment will be. I believe the best investments do not require leverage as your time horizon is infinite with stocks and it doesn’t cost you more to hold a stock for 10 years as it does to hold it for 1 single year. This allows the investor a lot more flexibility and is a much safer way to invest ones money without putting a timer on any of their investments

[@mpower2386]

The point of leverage is not always just to boost returns but sometimes it can help lower the risk adjusted for returns. Let say you invest 100% in spy, you are not leveraged but are pretty much all in on market risk. Now let say you take 50% of your money and put it in a 2x s&p 500 leveraged etf, you have more or less the same market exposure but have 50% of your money left to play with. Put that 50% in any asset with a positive return expectency that is not correlated with spy (like gov bonds) and you will have a lower risk adjusted for returns then if you would just put 100% of your cash in a s&p 500 etf. The only question that remains is if this gain in risk adjusted return is enough to offset the added cost of using leveraged product... If you know what you are doing, I think it can be

[@domenicomartistocks]

M Power okay that does make a lot of sense in terms of helping your diversification but I still believe that the added cost of using leverage isn’t worth it were something such as a recession to happen right after you invested as it could take up to even a few years for the market to recover. I do understand what you’re saying but I just believe that one should invest the money they have and that they are ready to lose should a catastrophic event occur and by using leverage you are adding risk to this strategy. But thank you for the clarification👍🏻

[@mpower2386]

@@domenicomartistocks in the case I laid out, if a recession hit, you would be better off being invested 150% (100% equity /50% short term bills) then only 100% in equity unless the negative correlation between bonds and stocks were to break. So to your point yes, if you want to make more money there is always some risk creeping in somewhere, you just need to be wise enough to know those risks exist and to figure out which one you can handle. I heard some financial planner say that for most of his younger clients a 60% bonds 40% equity is optimal not because thats what the numbers dictate but because it is, on average, the level of volatility his clients can assume long term without making terrible decisions along the way... so your advice would be correct for most people.

[@DiamondTear]

The longer you hold the investment for, the more you'll get in dividends and appreciation. I don't see where the time limit would come from.

[@domenicomartistocks]

diamine665 because with leverage, the longer you hold the stock, the more interest you are paying so you essentially are hoping you can get rid of the investment as soon as possible

[@Outta12]

Ok. You reeeeeeeeeally added value with this video!!! Subbing!!!

[@BenFelixCSI]

Thanks!

[@m.morininvestor9920]

Value premium still exist! 😊

[@martydelaney]

Hadn't heard of leveraged investing before and this was very informative. Thank you so much for making these understandable and fascinating videos.

[@educationjack5730]

Interest Rate is only one way to look at margin cost, you should also look at the total cost. if you are not going to extend the loan out the your net cost of the loan will be much lower

[@Eduard338]

this is very good one. i was thinking about leveraging myself - didn't do it in the end :-)

[@flurinjenal374]

Why not?

[@Dave-yw2wc]

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.

[@geotech8071]

Hi Dave, did you use your dividend stocks to re-balance the leveraged ETF?

[@robinspanier7017]

why would you invest in single stocks with leverage, thats a sure way to lose

[@GubeTube19]

For the lady point you made: how can "embedded leverage" of a leveraged ETF be "priced in"? How is it priced in? What does this mean in this context?

[@roz1052]

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.

[@ZelenoJabko]

Wow, you really went in depth. This is so rare to see.

[@Smithers-G]

Great video. Recently started using a heloc to buy index fund VGRO shares. Let's see where this ends up decades down the road.

[@joehostile4541]

How did it work out the last 8 months?

[@kevinforward3249]

Ben, excellent as usual.. please consider a video on covered calls.

[@BenFelixCSI]

Thanks! Covered calls limit your upside. Yes, you get some extra income, but if we are operating on the assumption that stocks have positive expected returns you are giving up some of that expected upside by selling calls. The strategy also affects the distribution of outcomes, where you have limited upside but maintain all of the downside (less the option premium). The strategy is also tax inefficient due to the added income from option selling. Maybe a video eventually.

[@stakis12]

Can we expect further discussion on this topic on a future episode of Rational Reminder? I’d love to hear about portfolio structure with your model portfolios asset mix etc when introducing a HELOC to the mix.

[@BenFelixCSI]

Yes, it is on the menu for our second episode of 2020. I think we will discuss leverage for both the portfolio topic and the planning topic. There are good angles to discuss leverage in both contexts.

[@stakis12]

Ben Felix you guys are legend!!

[@rolandoafender]

Hey question, could you create a video on your day to day roles & operation as a portfolio manager? What you do entirely?

[@djpuplex]

Tqqq and sqqq made me a mint this year. Until I held tqqq during Powell's speech in July, 2% of AUM gone in fifteen minutes.

[@BenFelixCSI]

That's an expensive fifteen minutes!

[@jorgedelgadillo4044]

@ K Roddy for how long did you keep tqqq. I read it starts to lose its values if you keep if long term. I'm new in investing and was doing well with the tqqq and SQQQ, but got to confident and bought a lot of tqqq and it went down right after. This was on friday now I'm not sure if I should cout my losses right away or if I'm better off holding long turns Any input will be appreciated.

[@Carlos-kv6hx]

Thank you for the videos. Very educational. Can you do one on option strategies? Covered calls etc...

[@samersarhan]

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

[@joelongweichen]

Excellent video, especially that last bit on leveraged ETFs. I learned the hard way how significant time decay can be a few years ago. Keep up the great videos.

[@rtashpulatov]

A good way for borrowing against the house to invest in non-registered account is to execute so-called Smith Maneuvre: it works well is you already have some spare cash or non-registered stock. You sell your stocks to pay of as much in your mortgage as you can, then you borrow that equity to buy back the same stock portfolio and now suddenly the interest on that loan is fully tax deductible.

[@mikep4869]

I see several very smart CFP's coming out of the Lower Mainland in B.C. Your videos are 'no-selling' knowledge packages. They are great! Please keep them up.

[@PORTDEPAIX]

I look at the charts of QLD and QQQ, and I found QLD has returned 2028% compared to 531% by QQQ for investors in the last 10 years. QLD has made a lot of its long term shareholders filthy rich.

[@Pancho117]

Fantastic video as always

[@BenFelixCSI]

Thanks!

[@shallow33]

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?

[@motim92]

My country has a wealth tax and very low interest rates are expected to stay a very long time. Interest is tax deductable as well. Interactive Brokers offers a loan at 1.5% p.A. If I subtract the wealth tax, tax deduction of the interest and Inflation from the interest, then the leveraged portion is around 0.5% more expensive than the rest of the after tax investment. That seems quite a good deal. The question then comes to how much you want to leverage. You could base it on the biggest drawdown that you want to survive without a margin call. For a 66% loss and a margin call at 25% you can safely leverage 36% of your portfolio. It is a bit more if you assume that you either buy more securities or pay of part of the loan during a drawdown.

[@BenFelixCSI]

The incentive that the wealth tax creates for leverage is fascinating. The Ayres and Nalebuff paper suggested 2:1 leverage.

[@ioannislazaridis4887]

Thank you and congratulations for your precious free lectures. After watching this video I have decided to borrow from my brokerage firm so to buy more stocks. Interest in Scandinavia is around 1% . Greetings from Finland.

[@BenFelixCSI]

Nice! Actionable information is what I am aiming to provide. I'm glad this video was useful to you.

[@Thurgor_Supreme]

Jack Bogle said the only thing better than index investing is leveraged index investing. However, I wouldn't feel comfortable taking more than 15% of my portfolio on a margin loan.

[@John-yk4bp]

What about leveraging by buying index futures and keeping them rolling, and not go for interest payments

[@WorldWideRide2012]

Well researched and presented as usual Ben. Key take away for most novice investors and perhaps even the "pretending" pros should be the theme of behaviour (separate video perhaps?). After eleven years of a one-way bull market with only very brief corrections, I'm hearing a lot of brave talk about leverage and inappropriate portfolio risk. My response to this crowd is always a simple question "were you buying stocks in late 2008 and into 2009?" If no, then leverage has no place being in your portfolio. Always lots of bravado in a bull market and this one is a beauty. Happy Holidays

[@gameplays811]

I think your'e making a point about behavioral factors, which I agree with, but a leveraged investor should be selling stocks after a crash to avoid being over leveraged right?

[@laine9450]

If you're using more leverage to make your risk profile more aggressive, are you always (or often) going to want to have a 100% equity portfolio? I'd assume it makes no sense to invest in bonds using leverage, but would it make sense to be using leverage to buy equities while still maintaining a bond position? My intuition points me in the direction of no.

[@aralhan1]

It doesn't make sense to be both long and short a position.. leverage is being short fixed income.

[@motim92]

Leverage is essential a short position on (high yield?) bonds. So it doesn't make much sense to hold bond in that case, especially if your bonds have a lower return than the interest on your loan.

[@htimsrecneps]

I would even argue that it doesn't make sense to own bonds and have a mortgage because the mortgage is essentially a bond that you have shorted.

[@yu-weiwang6002]

If the leverage part and the bond part has similar maturity, it usually not make sense. However, sometimes you want to short a shorter-term bond while longing a longer-term bond, or vise versa. And in some specific situation, you can borrow at a lower rate than the bond yield, and there could be a chance of arbitrage.

[@BenFelixCSI]

This comes back to that question of what is the optimal portfolio that we should apply leverage to. In general I agree with the other comments that it does not make sense to use leverage to invest in bonds. Here is an interesting take from Cliff Asness www.aqr.com/Insights/Research/Journal-Article/Why-Not--Equities

[@themaltesefalcon4337]

Excellent video. Realistically, using any form of callable debt increases risk drastically as you can be wiped out totally if it is called. The best strategy by far is to take a mortgage out and invest the funds into globally diversified ETFs. However, you MUST use the funds explicitly for investing, and not for the initial purchase of the house. For most people, this means purchasing a house with a mortgage, paying it off, and then re-borrowing. Since the use-of-funds is for investing, the CRA will allow you to deduct it. So assuming a 2.6% fixed rate mortgage and a 50% tax bracket, you effectively have a non-callable loan for 1.3%. Now that is a Sweet Deal! The downside versus a HELOC is a reduction in cashflow, given that you must pay principle back with each payment. But you get non-callable debt and a lower interest rate. Well worth it in my eyes.

[@fitimimami8771]

Justin , you say ; “ However you must use the funds explicitly for investing and not for the initial purchase of the house, but then you go and say for most people this means purchasing a house (first) with a mortgage, paying it off and then borrowing against it .... so my question is I guess, weren’t you advising against doing precisely that ? And as a following question, How would most be people go ahead and do that ? What is CRA ???

[@mikep4869]

That's a good set-up. If you use Scotiabank at 1.5% today, they have a re-advanceable mortgage product. Which means, the principal portion of the mortgage payment is instantly made available to you in your HELOC. Just keep purchasing investments until you get to your (un)comfortable leverage level.

[@aileads247]

So, if I use my margin in etrade, how do they get my money for payments on the margin? through my cash in the portfolio I presume. So should I always have some cash to pay the margin payments?

[@bedehenderson8414]

Thank you so much. Great video!! I've been thinking about leveraging my ETF portfolio for about the last couple of years. I thought it would be a good idea, but I also knew I needed to do a fair bit of research first; otherwise I'd feel like I'm going into it a bit blind... I've been putting off doing this research, as I'm busy working full time and studying towards the CA designation. Now I have a summary of your expert opinion, and some excellent references to academic literature - exactly what I needed!! Thanks again, Ben! Your channel is excellent

[@BenFelixCSI]

That's great! I'm glad it was helpful.

[@brydanrogers7608]

Does this imply that if you continue to invest in a leveraged S&P 500 ETF each month that in the long run you'll receive a greater return than the underlying as long as you continue to invest during a bear market?

[@BenFelixCSI]

Yes.

[@laetussanta]

@@BenFelixCSI No, it is not correct. If you have a lateral market (after a bear market) you will lost almost everyhing (try to simulate with a 7x leverage etf, and you will see it very well).

[@bastiaanvandervossen4280]

What a good timing. As a beginner, I want to try leveraged 3x ETF in my next year's roth contributions. I am thinking of choosing a reasonable amount, maybe $2000, and sell if there is appreciable growth and buy if it went down significantly. Like, always keep it at $2000, in a buy low sell high strategy. Even if next year's returns are strongly negative, I will just add and add for the strong rebound. If next year's returns are strongly positive, my returns should be less than 3x, but better than 2x. If market performance is flat, I will have a small loss. If the market is very volatile yet flat, this strategy should reap good benefits.

[@BenFelixCSI]

This seems like market timing. kzbin.info/www/bejne/rZDEgHiIorqKmqM

[@bastiaanvandervossen4280]

@@BenFelixCSI Thank you for the input. I did not mean to get in/out of the market, but rebalancing to maintain desired leverage in the portfolio.

[@marcellavallee4005]

👍

[@anindomaiti8695]

Ben always great to listen to your lectures and learn something new. It makes sense for young investors to use leverage but for others I think need to exercise their "well-calibrated confidence" keeping in view the following quotes: 1) Warren Buffett in his 2017 annual letter to Berkshire Hathaway shareholders told investors not to use debt to buy stocks. “It is crazy in my view to borrow money on securities ...” 2) Benjamin Graham in "Intelligent Investor", on pg. 21 wrote, "... in our conservative view every nonprofessional who operates "on margin" should recognize that he is ipso facto speculating, and it is his broker's duty so to advise him ...".

[@BenFelixCSI]

Interestingly while Buffett professes to believe in avoiding leverage, much of his success is attributed to it. _Furthermore, we estimate that Buffett’s leverage is about 1.7 to 1, on average. Therefore, Buffett’s returns appear to be neither luck nor magic but, rather, a reward for leveraging cheap, safe, high-quality stocks._ www.aqr.com/Insights/Research/Journal-Article/Buffetts-Alpha

[@anindomaiti8695]

@@BenFelixCSI In my view, one can use leverage to buy what Buffet calls "cheap, safe, high-quality stocks" when there is a compelling buying opportunity, say after the market has undergone a 20% plus correction. Given one's investment horizon, not sure how long one has to wait for such an event to occur but that is a different point. Otherwise one will be taking a bet of trying achieve an expected return that is higher than his cost of borrowing (that too expected return not guaranteed return) vice versa earning a guaranteed return that equals the cost of borrowing if one were to pay down debt. They key issue with leverage is that it amplifies the loss (just as it does wonders on the gains) and if there were successive periods of losses, the arithmetic of compounding can be quite devastating to the portfolio if one bails out at the wrong time. Investing is not an exact science hence one can argue on either position interestingly :-)

[@xingchenwang1584]

Introducing margin stocks: what's the quickest way to go brankrupt during a financial turmoil?

[@commonsense-og1gz]

what about dollar cost averaging leveraged etfs over a long time, how does this impact the long-term performance of the etfs?

[@michael589m]

Just look at the charts and compare them to the underlying index that they track. You will see they often perform more than 3x over a period of time.

[@RicardoHernandez-zr1pw]

I like selling puts and calls on the leveraged ETFs. I don’t worry about the time decay too much. I see the long term effects for the leveraged ETFs affect portfolios after one year of holding yet you can still get great results regardless.

[@DaniilKononenko]

Could you please make video about CAPE and shifting weights of countries in the portfolio according to it?

[@BenFelixCSI]

I touched on that here kzbin.info/www/bejne/rZDEgHiIorqKmqM

[@mohammadrezasabouri6875]

That makes a lot of sense, like always! :) Here's a question for you. I live in Sweden and my income/expenses are in the local currency. When I buy global ETFs, I own assets, and fluctuations in Swedish currency won't affect their real value. However, if I borrow money to buy assets, I'm now exposed to another risk, the risk of my currency becoming stronger. How should one think in this scenario? Is it reasonable and/or feasible for an investor with low capital to try and cancel this risk using derivatives on the currency?

[@andersbodin1551]

Wouldn't it be so much simpler to just invest in swedish companids, if you want to avoid that risk

[@mohammadrezasabouri6875]

@@andersbodin1551 It's too risky. Sweden is a small country, if it's economy suffers for whatever reason, like it did in 1990, I risk losing my job, having my property lose value, and on top of that, losing my portfolio if it's all in Sweden.

[@correctionguy7632]

you're under the illusion that SEK is going to go up in value?

[@andersbodin1551]

@@correctionguy7632 are you under the illusion that you can predict the future?

[@elmateo77]

@@andersbodin1551 All currencies fluctuate in value, it's a reasonable assumption that SEK may go up at some point.

[@n.butyllithium5463]

What is defined as "young" for investing? when does the recommendation transfer from "you're young enough to use leverage" to "You're taking too much risk at this point and should focus on safety?" 30? 40? 50?

[@BenFelixCSI]

It depends less on age and more on life stage. A 50 year old investor with stable income and no intention of retiring might still choose to use leverage responsibly.

[@chrisjokinen217]

Was looking for a video on this topic from you a week ago, couldn't find it you so I read the book. Just finished yesterday, very interesting strategy, I have started applying it.

[@BenFelixCSI]

Awesome. I have not applied it personally but it is something that I consider often. What are you using to access leverage?

[@chrisjokinen217]

@@BenFelixCSI in my stable growth account though a bank broker I am using a Margin account for 2:1 leverage with the stocks as security. In my high growth/high risk account I use CFDs for 5:1 leverage, these are a base buy and hold position with day trades around the central position.

[@WakeUpBuildUpLevelUp]

I am viewing TMF currently. What is considered a long-term hold on these leverage positions/typically too long on average? Does safety change at all when you are viewing a 20 year bond etf versus others? And I understand that nothing is guaranteed thank you for the insight.

[@MikaylaRose420]

8:00 I was thinking of going this route. Get my portfolio up to a certain level, then borrow against it after a crash. I predict that the interest that I pay will be less than my gains in the long term by a land slide. Get rich quick by never selling my investments and paying taxes on them. It is kind of like a mortgage method. You buy a house at 100k dollars but you pay 20k out of pocket and pay off the remaining 80, but if the house goes up to 300k, your mortgage is still 100k and you just 3x'd your investment just by taking out a loan instead of saving up the 100k and find out it's too late. Much in the same way, I want to borrow against my portfolio after a market crash and pay off that loan over time after the rebound. Thus I can DCA until a crash, loan, invest the loan, and pay off the loan instead of dca, which would overtime result in less equity for the same amount of money.

[@goauld88]

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?

[@nathanmorris6928]

Great video Ben. I have a question around brokerage risk. I’m young and want to add some moderate leverage to my long term investing. Interactive brokers has margin rates in the 1.2-1.5% range. This is less than a mortgage and 1/4 or 1/5th of what other brokerages are offering with similar balances, margin requirements and fees. I’m worried I am missing something here. Is there something like the CDIC to protect my funds should brokerage go bankrupt ? Do I own my shares outright or is there some measure of brokerage risk I can weigh in my decision? Thank you !

[@Daniel7681]

In my opinion the only concern in Canada is the variable interest rate nature of something like a HELOC. If rates rise significantly for whatever reason (inflation being a probable one) stocks would likely fall & interest only payments on something like a HELOC may become too significant for the borrower, creating a need to sell the securities at an unideal time. In the US where you can lock in a rate for 30 years this may not be an issue but in Canada this would greatly increase your risk if I’m understanding this correctly.

[@hahaboy211]

@12:12, what do you mean by it being priced in? For an index ETF, won't derivatives and the individual holdings simply be used to reflect the underlying index such as S&P500. The S&P500 doesn't price in leveraged ETFs into it?

[@BenFelixCSI]

The convenience of the built-in leverage slightly reduces the expected return. Based on this paper docs.lhpedersen.com/EmbeddedLeverage.pdf _Consistent with this hypothesis, we find that asset classes with embedded leverage offer low risk-adjusted returns and, in the cross-section, higher embedded leverage is associated with lower returns_

[@johnpreston230]

I am re watching all Ben's videos. He is a Jedi Master.

[@739jep]

How might one approach rebalancing if they’re using leverage? What are the considerations anyways.

[@alecubudulecu]

love your videos.. good stuff.... you have a great way of explaining complex topics in a simple manner that is easy to understand., but also you go into depth on topics that I find I already know... so i'm always learning. plus you project well and good audio. (I listen to you while at gym or driving... so audio is more important than what people show in the videos to me)

[@BenFelixCSI]

Thanks! If you prefer audio I wonder if my podcast would also be useful to you. It's longer and unscripted (so less structured). rationalreminder.ca/podcast-episodes

[@redoxhydra]

As an investor with a high risk appetite I'm very interested in this

[@AlexVoxel]

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

[@noc4265]

The 5 year return on TQQQ is significantly higher than QQQ... can somebody explain? am i missing something? I haven't looked hard enough to find a calculator that will go back more years but it seems to me that even in the long run TQQQ does significantly better, yet i keep reading about the horrors of leveraged etfs. can somebody explain? i'm a noob, just started investing my disposable income a few months ago.

[@djayjp]

It's all about the magic of an RRSP top up/catch up loan. I just got an RBC one for prime + 1.5% unsecured. Can be up to 50k.

[@braddeicide]

I decreased leverage after "holding" a leveraged position during the GFC.

[@geosvandos]

Hi Ben! You usually share a lot of papers in your videos, but at least for me, they are a little hard to follow. I always end up blindly trusting the abstract or just dismissing the whole thesis out of precaution. Could you please make a video explaining the methodology of these articles? You are able to make knowledge very accesible to everyone. Thanks for your work!

[@BenFelixCSI]

It would be be beyond challenging to make a single video explaining the methodology of all of the papers that I have discussed. Each paper's methodology is what makes the paper uniquely insightful.

[@geosvandos]

@@BenFelixCSI Could you share some simplified heuristic for the average reader to approach this knowledge barrier? Thanks for answering.

[@BenFelixCSI]

Well, papers that have gone through the peer review process to be published in a respectable journal are generally going to be reliable sources of information. Likewise papers from people with long histories of publishing excellent research like Eugene Fama are less likely to contain bad information.

[@Fenzaz]

What about using leverage in a 100% equity portfolio? My investing platform in Sweden offers margin loans with a current rate of 0.89%. Conditions are: You can borrow max 40% of the value of your portfolio. A single stock can constitute at most 20% of the value of your portfolio. A single fund can constitute at most 60% of your portfolio. If the borrowed amount goes above 40%, the rate increases to 1.99% and you can borrow max 60% of the value of your portfolio. Beyond that, the platform reserves the right to margin call. What would an optimal percentage of leverage be, both for returns and to be able to sustain my portfolio through stock market downturns and crashes. I was thinking of around 20%. If we for example assume that my portfolio is worth 100k, the stock market would drop the value by 50% before I reached the higher rate, and then another drop of 35% before I risk margin calls. On the other hand, with a borrowed amount of 15%, you can survive the stockmarket dropping 50% twice before having to worry about margin calls.

[@SFreedberg1]

Even though it isn't necessary for you Ben, you should practice blinking about once every 15 seconds just so people will believe you're human. I personally have no problem with it. Two of my favorite companies are owned by aliens - Facebook and Tesla. Even Spock had to learn some to mimic some human behaviors. Great video - I learn a lot from you.

[@lucamaurelli5877]

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. 🙏🙏🙏

[@siddhartha_1]

I like your style of presenting. Do you write the words first? Are you speaking from memory or reading as you speak?

[@BenFelixCSI]

Thanks! I write the words first and read them as I speak.

[@Vitlaus]

Wish I heard this getting out of high school . . . Oh well

[@robertmaxwellproduce]

Great video man! No bullshit just straight facts. I subbed after watching the first 150 seconds

[@Schabulla]

I know i am late, but what do you think about the paper "Leverage for the Long Run"?

[@EzraWildes]

A leveraged etf would still significantly outperform the index in the long term, if it goes up in the long term right? Can the effect of the variance actually make it underperform the index? Are there any examples of this? For instance, TQQQ (3x nasdaq 100) isn’t exactly 3 x QQQ but still significantly outperformed it despite the volatility and I think despite the expense ratio. In light of this, wouldn’t it be smart for a risk tolerant long term investor to invest in something like TQQQ, on the assumption that the nasdaq 100 will rise over the next 20-30 years?

[@samsonsoturian6013]

Too much leverage means the portfolio will inevitably hit zero at some point. Also, the average return over any given time period would be the same (BEFORE FEES). The general rule is you shouldn't borrow to buy things you don't need. You don't need stocks.

[@daundredemars5028]

So if we found a levered etf that rebalances monthly/yearly we would be set?

[@David-dw2iq]

Trying to understand this. So if I have 10k into a total market index. I can borrow an additional 5k of margin to invest? If the market drops, I have to cover the difference. Can you continue to cover the difference for an indefinite period of time as long as it’s 50%? As in I could just cover the difference for 10 years until it comes back up?

[@David-dw2iq]

Observer x I’m not understanding how what you said is different from my example? If it drops I can over the difference?

[@David-dw2iq]

Observer x it sounds like a Heloc would be the way to go as you could pay it back over time and not worry about the ups/downs of the market. Never done it, just based on what he says in the video of margins being “called”

[@jordanb722]

So long as you can cover your LVR, a margin lender will allow you to keep those assets. In your example, you could perfectly well do that. Of course, if you are using a margin loan to invest in such a manner, chances are you don't actually have the ability to cover it in the case of a market crash, which is how you lose everything, as the lender sells you out to guarantee the money they lent to you (and guarantee your loss!) Margin loans are incredibly dangerous because of this. If you are leveraged 30k with 10k of your own assets, then a 25% drop in the value of the market will see your 40k of investments turn into 30k, at which point your own share of the loan is gone. The lender sells you out and keeps the 30k they lent you and you lost your 10k (100% of the investment!). Most lenders require you to be above this point so that you don't fall into the negative from a fast market, but you get the general idea. At no point does the margin lender want to be in a situation where your securities don't cover the loan.

[@David-dw2iq]

Jordan B id have to see some analysis. Without running the number it seems like if you had 30k to invest. only invested 20 and used the remaining 10k to cover your margin, you could be alright? In theory if you invested 20 and got 20 more you would have 40k in (only 20 of your own). Any recommendations on where to learn more about it? Never studied it beyond this video. Thanks for the responses guys!

[@jordanb722]

so in your example, you are leveraged at 50% (20k your cash, 20k lenders cash). If the lender requires a 75% LVR, then you will get margin called if the market falls enough that your portion of the money (20k) is worth 75% of the asset value. In this case, you have 20k, and a 75% LVR is 26k. That is, if the value of your investment falls from 40k to 26k, the lender will margin call you and require extra money be put against the loan. That's because they want to ensure they get the 20k they loaned you back. Now, you can do as you suggest, and keep extra money aside to guarantee the loan, but this runs into the issue of "why bother?" with a margin loan at that point. Just use the money you were using as guarantee, invest directly, and save on the interest. No matter what, it all just comes down to how much you borrow vs the money you put up, and if you stick to low LVRs (as your 30k cash for 40k investment presents) then you have a relatively low risk situation regardless.

[@JordanLaboucane]

Clear, concise and a rational reminder as always.

[@gabesauce9]

This is great. Can we get more on things like this?

[@BenFelixCSI]

Any specific suggestions?

[@erichandersen3343]

@@BenFelixCSI More info on using ETF and index options as a form of leverage (as discussed by Ayres & Nalebuff, but with more practical detail) would be greatly appreciated! Love your work, I've kept an eye out for info on leveraged investing for years and this is possibly the most rational and approachable analysis I've seen.

[@Frederick0220]

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

[@jakel8627]

He has other videos on growth stocks and supposed technological revolutions like ARK

[@keilansnider1805]

Could you do a video the technical breakdown about the different types of leverage? Such as the daily breakdown of the loan from a margin account, a personal loan, and any other types of non-mortgage types of leverage offered by banks.

[@ronodmg]

Hi Ben, great video as always! I'm 27 years old and using leverage currently to amplify my volatility. What I was hoping the video might also have gone into, is how much leverage is "sensible". Obviously, the more leverage, the more returns when things are going well, but the higher the odds of a margin call when things are going poorly. My broker lets me borrow for roughly 1.5% per year which seems very cheap, and I'm currently using around 15% leverage. I was curious to hear your thoughts on the amount of leverage, or if you have any good studies which go more indepth on the increased potential returns vs the increased risk of a margin call! Thanks!

[@BenFelixCSI]

Thanks! The Ayres and Nalebuff paper suggested 2:1 leverage, but I think that the leverage decision is similar to the stock/bond decision. Should you be 80% stocks or 90% stocks? Same questions as should you be 100% stocks or 110% stocks? It comes back to the ability, willingness, and need to take on risk.

[@adonisds]

@@BenFelixCSIAre you saying that a fair amount of leverage is good, as long ad you can stomach it? But 200% leverage? Won't that makes you lose everything as soon as the next big crisis hit and prices drop by 50%? Or did I understand something wrong?

[@plasmicfury0]

@@adonisds You only lose if you sell the assets you bought when they are down (or are forced to through a margin call). If your portfolio is made up of well diversified total market ETFs, you can simply hold through a recession and you won't lose everything. You may come out less far ahead though if the markets do poorly for an extended period of time. Just make sure you don't overextend your leverage, have a plan if the markets go to shit. If you have 50,000 in the markets of your own money, and a 10,000 emergency fund, maybe you shouldnt borrow 100,000 to invest. Thats way too over extended. But perhaps 20,000 would be reasonable.

[@adonisds]

@@plasmicfury0 But when you "lost" everything because the prices are down 50% are you are 200% leveraged, would you keep leveraged betting that prices are gonna go up? What if instead they drop another 20% and don't recover for years and now you are deeply in debt? Imagine how nervous you would be in that situation.

[@plasmicfury0]

@@adonisds Well first, I did say you shouldnt be leveraging to the extent of 200%, that seems way too risky to swallow. Second, you need to think of it in terms of unrealized losses. Even in your example of 200% leverage, if the market goes down 50% (where you are at a 100% unrealized loss), you continue to hold your position leveraged (assuming you didnt buy on margin and you get margin called). You don't leverage more, unless you had that in your plan all along and you can stomach the increased interest payments on the leverage you are using. Conceptually, before you start leveraged investing you should have a plan if things dont go well. Will you be able to make the payments? If not, don't do it. You should have a strong enough footing that even if the markets do poorly for several consecutive years, you can continue to make the interest payments on the loan, and hold your leveraged assets no matter what. In theory, the markets will recover eventually and you won't come out with such a substantial loss, than if you decided to sell your assets and take a 100% realized loss when the markets drop 50%. But like I said, you probably shouldn't be leveraging so much that a 50% drop = 100% losses. Only do what you can stomach and what you can afford. If you think you can't stomach it, just don't do it.

[@KnowArt]

Borrow money, put in into robbinhood, all in a single volatile stock like TSLA, use 100% margin. Profit?

[@laetussanta]

I use a lot of leverage when I find a very short term bond (with a very very low risk) or when I find a share under tender offer (tender offer without conditions). In this case I will obtain a great return with a very low risk

[@la.zanmal.]

It's easy to find short-term bonds. A "very short-term bond" that paid a higher rate than your cost of borrowing would be effectively an arbitrage, which is exactly why you aren't going to find them - even if your credit is stellar.

[@nico27ftw]

I don’t understand why it’s not good long term? If i buy a share at $4, and it goes up to $6 two weeks from now. I’m still making that $2 correct? Why should it matter if it resets daily? I would sell my 3x leveraged etf for $2 more than i bought it for regardless of length of time? Please help explain to me lol i know I’m not as smart as these experts but it just hasn’t clicked yet. Thanks

[@ggegguri]

No discussion of leveraged CEFs, the oldest and most diverse offering of leveraged funds in the market?

[@princeaah]

Hey Ben, as always well researched video. A few questions for you: 1. What are your thoughts on the Smith Maneuver? 2. Can the HELOC portion be still callable if you are locked into a 3 year fixed mortgage (BMO Homeowner Readline as an example)? 3. Lastly, I know that the yield curve has been inverted since August of 2019 (I think) and I know this question is alluding to timing the market, but for leveraged investing, would it be prudent to wait it out until the next crash occurs?

[@keilansnider1805]

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

[@Run-GNC]

Based on this video the cash would be better I think. Because you’re not going to have to pay interest on any loan

[@brianbirnbaum9760]

Hey Ben, can you explain more what you mean by the notion that the leverage is priced into leveraged ETFs? I didn’t quite grasp how that is and how it affects returns.

[@BenFelixCSI]

The convenience of the built-in leverage slightly reduces the expected return. Based on this paper docs.lhpedersen.com/EmbeddedLeverage.pdf _Consistent with this hypothesis, we find that asset classes with embedded leverage offer low risk-adjusted returns and, in the cross-section, higher embedded leverage is associated with lower returns_

[@REALPLSHOWN]

Leverage is the reason we are in a stock market crash. If someone borrowed against their house to buy stocks at the time of this video then 2 months later they may be looking at losing their stock portfolio and their home equity!

[@julienlefebvre3561]

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?

[@John-ep4in]

Are you aware that credit cards like mbna give promo cash advances for 1.99% per annum. I dont understand how they can loan unsecured debt that cheap. But I use it instead of margin or heloc. The only thing is it must be paid back in full before the year is done. Or rolled over to a different card

[@BenFelixCSI]

You run into a timing problem. If you are not able to roll the balance into another low interest offer you will be stuck with a high interest loan. If your investments are down at that time then you are in trouble. Continuously applying for new cards every year is also going to negatively affect your credit,

[@InStyle9]

Hi Ben, care to elaborate a little bit on Emerging Markets in one of your future videos? Thanks in advance!