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Re:Individual Investors Get Burned by Collapse of Complex Se... by bob1029 on Monday June 01, 2020 @04:29PM (#23383394)
If you have the risk tolerance for it, I would strongly advocate for using a margin account and purchasing stock in companies you trust and understand instead of holding onto someone else's interpretation of the same idea (i.e. ETNs and other higher-order derivatives). Put another way, if you don't have the stomach for a margin account, you absolutely should not be putting any substantial amount of money into these kinds of derivatives either. It's arguably even more risky.

Sure, 5%+ APY interest sucks, but so does being completely wiped-out over something you have zero visibility into. At least with a margin account you can look into your assets and control your risk in a very direct and immediate way.

I personally run a 50/50 leverage ratio with my margin account (i.e. 2x). I review this status on a weekly basis and will make decisions based on high/low water marks (45/55%). I've previously held ETNs and other derivatives when I was still learning the ropes... Margin accounts are 10x less stressful for me by comparison. It's literally just a normal portfolio that I would otherwise be perfectly comfortable with, but tuned slightly for a longer-term investment horizon. The fees are negligible to me with dividend income and the bigger strategic picture at play.

Re:Individual Investors Get Burned by Collapse of Complex Se... by haltingproblem on Monday June 01, 2020 @06:20PM (#23384689)
This is honest and good advice. While, I would not recommend anyone trade on margin or even trade individual stocks, but if you are going to trade leveraged stock etfs then this is a far more honest way to go about it.

The leveraged ETFs just give you the illusion of trading leveraged while siphoning away your capital in drips.

Re:Individual Investors Get Burned by Collapse of Complex Se... by siberianbear on Monday June 01, 2020 @04:55PM (#23383701)
If you do this yourself and feel comfortable, good for you.

But I wouldn't widely suggest people lever up 2x using margin. It's dangerous advice. In a severe down market you can be wiped out with a margin call and forced to sell at a low point in the market.

Re:Individual Investors Get Burned by Collapse of Complex Se... by bob1029 on Monday June 01, 2020 @05:21PM (#23384013)
I strongly disagree with the notion of "dangerous" advice, especially when given in good faith. I even prefaced my post with a disclaimer regarding this practice.

I could pose a counterargument that not investing aggressively in finance from a young age is the most dangerous thing you could do to your future self if you hope to maintain an equal or superior standard of living.

Re:Individual Investors Get Burned by Collapse of Complex Se... by jnsie on Monday June 01, 2020 @04:51PM (#23383664)
Where are you getting 5%+ APY?
Re:Individual Investors Get Burned by Collapse of Complex Se... by brockwhittaker on Monday June 01, 2020 @06:04PM (#23384523)
He’s talking about paying 5% interest to borrow leverage. That’s about the going rate.
Re:Individual Investors Get Burned by Collapse of Complex Se... by arcticbull on Monday June 01, 2020 @06:44PM (#23384955)
Margin interest these days is a lot lower. 5% is about what Robinhood charges. IBKR charges 1.55-0.85% depending on the amount borrowed [1].

[1] https://www.interactivebrokers.com/en/index.php?f=44427

Re:Individual Investors Get Burned by Collapse of Complex Se... by bob1029 on Monday June 01, 2020 @07:26PM (#23385294)
Thank you for bringing this to my attention.