Re:Save like a pessimist, invest like an optimist
by paulpauper on Saturday November 14, 2020 @05:00PM
(#25096034)
path dependency is the main problem with margin trading. S^P 500 fell 60% in 2007-2008. So that should give you an idea of how much of a cushion you need to give yourself for the worse case scenario.
Re:Save like a pessimist, invest like an optimist
by xchaotic on Saturday November 14, 2020 @05:52PM
(#25096419)
If this is just retirement money, so what? It rebounded pretty well since.
Re:Save like a pessimist, invest like an optimist
by paulpauper on Saturday November 14, 2020 @06:37PM
(#25096691)
if you have have 100% margin and the market falls 50%, the broker will close out all your positions at a large loss to protect its own assets (often well before the 50% target), at which point it will not matter how much the market rebounds after that
The calculations in the book use much more pessimistic annual interest rates than the 1% you quote, too.
I'm too risk averse to actually do this, even though I believe their arguments. However, it has convinced me that at least 100% stocks, 0% bonds is optimal, if we avoid margin (for a young person expecting a good job).