Challenging ShinyThing assumptions.

[Knight_Rider]

Have you backtest your strategy? If so, how long?

Maybe you should ask what if Europe is ****** for 5 years and recession take them out for another 5? Then those who invest in their ETF how?

 

[BBCWatcher]

You really need to sit down with your banker or your existing banker not bery competent.

I don't think that's fair. Mike is probably correct. Banks are not charities. One has to evaluate all parts of that deal, rationally. It'd be completely unsurprising if that $1 million investment were at least pretty terrible.

That said, the basic concept can work for certain high net worth individuals. But usually it's done for tax avoidance reasons, usually elsewhere.

 

[Shiny Things]

Most banks are offering "overdraft" You put in $1M in Insurance/Investment and they lend you $2M. With low interest rates most Priority customers are doing it. You put in say a 5% income fund just pay the 1.3% interest I do think it's a no brainer.

They call that a "carry trade", and they call it that because the people who do them tend to get carried out backward.

Seriously though: "borrow to make high-yielding investments" is a bet that the assets won't go bad, or drop in price.

If you're not leveraged, a 20% drawdown in your "income fund" is totally survivable. If you're 1x leveraged (invest $1mio, borrow $1mio, buy $2mio of assets), then a 20% drawdown becomes a 40% drawdown, and starts to look quite hairy. 1x leverage to buy stocks is essentially a very hefty bet that 1998 or 2008 or 1987 isn't going to recur, ever.

If you're 2x leveraged, you only need a 33% drawdown to completely bankrupt you.

And prime brokers usually don't let you do this any more, but if you're 25x leveraged like Long-Term Capital Management was at its peak, well, then, hold onto your hats ladies and gentlemen 'cause this is gonna be a wild ride.

Separately, like MikeDirnt said, it's also a bet that your funding costs won't go up and the yield from your investment won't go down. Carry trades tend to like funding short and investing long, so if yield curves flatten (like they're doing now!), the cost of funding is going to converge with the yield on the investment, and you might end up paying hefty interest.

 

[Knight_Rider]

They call that a "carry trade", and they call it that because the people who do them tend to get carried out backward.

Seriously though: "borrow to make high-yielding investments" is a bet that the assets won't go bad, or drop in price.

If you're not leveraged, a 20% drawdown in your "income fund" is totally survivable. If you're 1x leveraged (invest $1mio, borrow $1mio, buy $2mio of assets), then a 20% drawdown becomes a 40% drawdown, and starts to look quite hairy. 1x leverage to buy stocks is essentially a very hefty bet that 1998 or 2008 or 1987 isn't going to recur, ever.

If you're 2x leveraged, you only need a 33% drawdown to completely bankrupt you.

And prime brokers usually don't let you do this any more, but if you're 25x leveraged like Long-Term Capital Management was at its peak, well, then, hold onto your hats ladies and gentlemen 'cause this is gonna be a wild ride.

Separately, like MikeDirnt said, it's also a bet that your funding costs won't go up and the yield from your investment won't go down. Carry trades tend to like funding short and investing long, so if yield curves flatten (like they're doing now!), the cost of funding is going to converge with the yield on the investment, and you might end up paying hefty interest.

You pledge your fixed investment like universal life or annuity not the other way round. You need to undo the more liquid which is easier.

Drawdown? How do you drawdown a universal life? So what is left is cost. Developed nations having 5% interest rate is rare. Even when it happens like I said just switch to FD. But then again income fund will perform if sh** happens.

 

[Knight_Rider]

I don't think that's fair. Mike is probably correct. Banks are not charities. One has to evaluate all parts of that deal, rationally. It'd be completely unsurprising if that $1 million investment were at least pretty terrible.

That said, the basic concept can work for certain high net worth individuals. But usually it's done for tax avoidance reasons, usually elsewhere.

I say again Mike need a competent banker to teach him the right strategy. You dun pledge a high risk to invest in a low risk. Like Shinny say the drawdown will bankrupt you.

 

[Knight_Rider]

Maybe you should ask what if Europe is ****** for 5 years and recession take them out for another 5? Then those who invest in their ETF how?

Now that the economic cycle is not that predictable what if US suffer the same fate? What then? 10 years throwing money down a permanent drawdown? Guru dun just attack leh have some discussion leh dun make this into a bashing thread. Your are suppose to understand Shiny theory inside out.

So a realistic scenario say you have been buying US etf for the past few years and you hit a recession next year and mkt slowdown for the next 10 years. A drawdown that you dun even realize. Then what? Or there is no recession on next year 10th anniversary. How is your buy and hold DCA gonna work?

 

[beefjerky]

I agree as a generalization, but there are at least a couple interesting, common exceptions:

1. Student loans, especially government subsidized ones. Sometimes it makes great financial sense to borrow this money even if you don't need to.

2. A reasonably sized mortgage on owner-occupied housing, especially if there's a tax advantage and/or government subsidy.

Do the banks or govt check where the Student Loan goes to? I was considering this but then do we just put this Student Loan into abf Bond or ssb or something riskier

 

[Mecisteus]

I say again Mike need a competent banker to teach him the right strategy. You dun pledge a high risk to invest in a low risk. Like Shinny say the drawdown will bankrupt you.

You are correct. I don't have a competent banker to attend to me because I don't need one.

I still remember you are the guy who can earn $500 easily in the day. Hey as I said, leverage up further and make $5k a day. Why stop at $500 only.

 

[Knight_Rider]

You are correct. I don't have a competent banker to attend to me because I don't need one.

I still remember you are the guy who can earn $500 easily in the day. Hey as I said, leverage up further and make $5k a day. Why stop at $500 only.

Shiny like you dun really go into forex so there is no need to tell you what I do although we have pass that limit. If you like you can post at the forex thread and maybe I'll reply if you are nice. I have covered the "What if" so let's get back to the topic. Or there is no what if contingency plan? So like I said for the last time stick to the topic and stop the personal attack. Your next post will surely get an even reflection.

So you dun need a banker? Steady lah you buy house using stacks of cash under the pillow? Must teach me someday.

 

[Mecisteus]

So you dun need a banker? Steady lah you buy house using stacks of cash under the pillow? Must teach me someday.

There is a person called mortgage broker.

Nevertheless, majority of DIY persons here deal with investments/savings themselves. We don't go through bankers.

 

[Knight_Rider]

There is a person called mortgage broker.

Nevertheless, majority of DIY persons here deal with investments/savings themselves. We don't go through bankers.

Looks like majority is shutting down all other concepts except Shiny. Good day and good luck.

 

[Mr.Canberra]

Wow another groundbreaking thread started by the legendary Daimon kor kor who is not afraid to question the status quo.

Support! Support!

 

[Mr.Canberra]

I'm not even sure that the TS knows anything about investing.

How can you see my idol no up? I have something in common with him ok!?

His monthly living budget of S$400 is the same as mine!

It's normal for students who just graduated. They tend to apply what they learn in theories.

Steady lah you understand my idol best!

It is always like that once fresh from leaving school tend to be very idealistic. After few years in the work force will become jaded and blend in with the rat race.

 

[BBCWatcher]

Do the banks or govt check where the Student Loan goes to?

Maybe, but that doesn't matter much. You use the low cost student loan to pay tuition, and then you use your own abundant cash -- more abundant since you didn't have to pay tuition out-of-pocket -- to invest, prudently. Then, when you graduate, on the last day of the grace period, you pay back the loan.

Normally the student loan rule is something like "enrolled and making satisfactory academic progress." Then there might be a 6 month grace period after graduation (or after leaving university). It varies, but that's typical.

In summary, if somebody is going to hand you interest free (or at least cheap) money if you do something you were already planning to do without that money, you might as well take the deal.

 

[dork32]

In summary, if somebody is going to hand you interest free (or at least cheap) money if you do something you were already planning to do without that money, you might as well take the deal.

for once, i totally agree with your statement

 

[Mecisteus]

So ExtremeWays = Daemon ?

These guys have a lot in common.

 

[Mecisteus]

Prior to Aug 2015, I was using leverage in IB. Interest rate was dirt cheap. Of course I don't need to go to bank to pledge anything close to 1M. Any retailers can leverage with IB at a rate not even a HNW can achieve through their banks. It was below 2% pa for USD.

24 Aug 2015 onwards, my account was swinging +-10k SGD daily. Boy, I tell you the big swings are not fun at all.

The point is, leverage can cut both ways. Do it only if

1) loan rate is dirt cheap
2) absolutely certain of your positions

 

[Purplestars]

Do the banks or govt check where the Student Loan goes to? I was considering this but then do we just put this Student Loan into abf Bond or ssb or something riskier

Most bank student loans are about 4-5% aren't they? Your SSB or bond fund isn't going to cut it.

 

[Mr.Canberra]

So ExtremeWays = Daemon ?

These guys have a lot in common.

Haha now then you know?

When he made his stealth appearance at the Forex thread some time back I already know instantly it is him. Until now he never admit or deny he is indeed Daimon kor kor.

Prior to Aug 2015, I was using leverage in IB. Interest rate was dirt cheap. Of course I don't need to go to bank to pledge anything close to 1M. Any retailers can leverage with IB at a rate not even a HNW can achieve through their banks. It was below 2% pa for USD.

24 Aug 2015 onwards, my account was swinging +-10k SGD daily. Boy, I tell you the big swings are not fun at all.

The point is, leverage can cut both ways. Do it only if

1) loan rate is dirt cheap
2) absolutely certain of your positions

IB still offering less than 2% p.a. for leverage?

 

[flikmy]

Haha now then you know?

When he made his stealth appearance at the Forex thread some time back I already know instantly it is him. Until now he never admit or deny he is indeed Daimon kor kor.



IB still offering less than 2% p.a. for leverage?

No longer especially since USD Fed-Funds are at roughly 1.16.
IB charges 2.66% now for USD margin (up to 100k).
See https://www.interactivebrokers.com/en/index.php?f=1595