Reasonable leverage strategies

[revhappy]

Hello guys,

I have Interactive brokers account and have ETFs IWDA and EIMI. I am allowed to use leverage but I currently dont. I was wondering if there are safe/relatively safe leverage ideas, that can produce yield higher that the interest rate charged by IB. For example, Gold or Silver ETFs, Debt funds so some other such contrarian strategies that complement the main portfolio?

Or do you guys leverage up the main ETFs maybe not like 2X but something more reasonable like 1.2X? I wonder if some leverage makes sense or should leverage be a strict no no.

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[sgbanking]

I generally leverage 1.3x, currently comfortable with the return and drawdown as well.

 

[Mecisteus]

I used to leverage up to 3x in Interactive Brokers when interest rates were at rock bottom.

Now that interest rates have gone up and US market is at exceptionally higher than usual valuation, I have gone down to 1x only.

I will probably leverage up gradually when there is more fear in the market. This contrarian move is quite hard to adopt but it is a rewarding one if you know which stocks to pick.

 

[chiusa]

May I know if we do leverage it will show up on our credit rating? Can affect housing loan and stuff?

 

[Mecisteus]

May I know if we do leverage it will show up on our credit rating? Can affect housing loan and stuff?

No. Because you are not borrowing money from the banks.

When you leverage in a margin account, you are borrowing capital from the broker itself.

 

[revhappy]

Commodities Are ‘Screaming to Be Bought’ on Valuation to Stocks

https://www.bloomberg.com/news/articles/2017-12-26/commodities-are-screaming-to-be-bought-on-valuation-to-stocks

Maybe time to buy commodities etf as a counterbalance, to equities.

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[limster]

Commodities Are ‘Screaming to Be Bought’ on Valuation to Stocks

https://www.bloomberg.com/news/articles/2017-12-26/commodities-are-screaming-to-be-bought-on-valuation-to-stocks

Maybe time to buy commodities etf as a counterbalance, to equities.

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you should have a diversified portfolio that already has exposure to commodities and not just buy whatever is the flavour of the month As I've discussed in another post, I prefer indirect exposure to commodities rather than direct exposure as commodities don't declare dividends and contango/backwardation are bad for your returns.

 

[Shiny Things]

Hello guys,

I have Interactive brokers account and have ETFs IWDA and EIMI. I am allowed to use leverage but I currently dont. I was wondering if there are safe/relatively safe leverage ideas, that can produce yield higher that the interest rate charged by IB. For example, Gold or Silver ETFs, Debt funds so some other such contrarian strategies that complement the main portfolio?

Or do you guys leverage up the main ETFs maybe not like 2X but something more reasonable like 1.2X? I wonder if some leverage makes sense or should leverage be a strict no no.

Sent from Xiaomi REDMI NOTE 4 using GAGT

Using leverage is always (except for a few cases) a tradeoff between whether you’re comfortable with the extra returns weighed against the higher risk of walking away with a zero.

The traditional strategy is to borrow short-term, at low yields, to invest in something longer-dated with a higher yield. That doesn’t work so well any more because yield curves are so flat (there’s not so much of a spread between short- and long-term interest rates), and getting leveraged long US equities is, as people upthread have mentioned, pretty unappealing with valuations where they are.

Leveraged bets on commodities are a terrible idea if you think rates are going up (which I seem to recall is your base case?), because commodities tend to go down when interest rates go up, and your borrowing costs will be going up at the same time.

Anyway, yeah, to be honest, even with the cheap margin rates at IBKR (sub-3-percent), I still don’t think there’s any particularly compelling balls-out-long-infinite-leverage trades at the moment. Corporate bonds are about fairly valued. US equities are a little rich, not extortionately so, but you still wouldn’t want to go excessively long them. Eurozone and Japanese bonds are, as I’ve mentioned, a hilarious disaster area.

I think this is one idea that you’ll want to keep in your back pocket until we see a bit of a pullback.

Update: That said, if you come up with a specific trade you want to put on, let me know and I’ll see if I can come up with a good way to get exposure to that particular market view, leveraged or not. That’s what I do, after all.

 

[unhinged_loon]

Curious if you think it is worthwhile making a bet on the VIX given its current (near historic) low.