Most target date funds are invested up to 80-90% in equities early in their life, with the remainder being bonds and short term (cash) investments. The re-allocation to bonds as the target date is approached (at which point the fund converts to a terminal income fund) is to reduce equity volatility and sequence of return risk (ie maximize growth exposure when it can be tolerated, reduce exposure as risk tolerance declines due to approaching income need).

We'd all like to capture maximum risk adjusted returns, but compromises must be made depending on your desired outcome and constraints.

This is too conservative and isnt helping people, you will work for your whole life with this investment plan and a regular income

Neither is having a portfolio take losses you can't tolerate unless you die and someone inherits it (with recovery happening while they're holding it). If the problem is that investors don't have enough cashflow over their working years to assemble a balanced portfolio that will comfortably carry them to death, that is a different issue. Reaching for risky yield is a lottery ticket.

If you maximize equity exposure too high, too long, you will potentially get blown out of the water. Broadly speaking, at some point, gains must be locked in and invested somewhere less risky (assuming your average person investing to retire).

https://archive.nytimes.com/screenshots/www.nytimes.com/inte...

https://archive.nytimes.com/www.nytimes.com/interactive/2011...

A slight over simplification, for example s&p was negative 1% per year from Jan 2000 to Dec 2009. Plus the cost of your leverage.

But the general point that US equity returns have been good and leverage would have increased them stands.

For some reason, Americans are “told” to get 4x leveraged to the real estate market but to pay for their equities with 100% cash.

Because if your house goes underwater, you keep living in it for years until it recovers and grows. With leverage on equity you get margin called during drops that kill your investment and give you no capture of future recoveries.

> A slight over simplification, for example s&p was negative 1% per year from Jan 2000 to Dec 2009. Plus the cost of your leverage.

For the 2000s, a US-only investor would only have been saved from the S&P500 by having at least 20% bonds and rebalancing:

* https://www.forbes.com/sites/advisor/2010/09/13/its-not-real...

Of course if you were not US-only, but rather internationally diversified (and rebalanced), you would also have been fine. Diversification is important, even for Americans (cited sources in the description):

* https://www.youtube.com/watch?v=1FXuMs6YRCY

Thanks for the great video on international diversification.

I noticed he has another on the related topic of bias toward investing in one’s home country.

https://youtu.be/qYedjI03Q0g?si=-wOqSA96cmScFInq

> For some reason, Americans are “told” to get 4x leveraged to the real estate market but to pay for their equities with 100% cash.

Your mortgage is fixed for 15-30 years (depending on mortgage product), and your real estate cannot be margin called (unlike securities which are constantly fluctuating in price).

Edit: Over leveraging on margin to buy equities? Not great. Borrowing against real estate equity to invest in equities, with rent comfortably covering the debt servicing? Potentially not as bad. TLDR Manage your risk exposure appropriately.

This reply cannot be understated. Those who are strong advocates for highly leveraged equity positions who use real estate to justify either have yet to experience a true market decline, or are simply really green to investing.

If I could leverage 4:1 on the total market index using a fixed 30 year loan without the ability to force a sale I would in a heartbeat. Unfortunately, that’s just not how it works.

And anything claiming to be the solution to that (like a leveraged ETF such as UPRO), suffers from volatility decay that causes it to underperform or eventually go to zero in horizontal markets (e.g. lost decades).

Yup. You cant get margin called on a mortgage, but theres clearly an optimal S&P leverage ratio, and its far above 1. Wild how repulsed americans are by this, when they really could retire much younger

Where do you recommend we can read more about this?

If every investor bought Bitcoin with leverage and started say 5 years ago they'd be retired now

Doesn't make it a good strategy.

That’s a diluted version of the logic that if we just printed out 10 million for each citizen, then everyone could quit their job and live rich, but the system somehow wants to keep people miserable and prevents this.

> if every individual investor bought the S&P with leverage, they would retire in 10-15 years

If you cherry-pick a specific period, sure. With that perfect foresight everyone can retire in a year, let alone 10-15.

Well, anyone. Not everyone.

> if every individual investor bought the S&P with leverage

You could also go broke! (or at least significantly underperform historical averages.) Sure, you can make higher returns by taking more risk. That's not most people's tolerance in a retirement portfolio.

There are plenty of other ways to diversify besides a 60-40 portfolio that are a lot lower risk.

Most people arent educated on how leverage isnt that scary, whats scary is working a job for 50 years

If you don’t want to work a job for 50 years because your portfolio got blown out, don’t buy stocks on margin. At least that’s what people who have been “educated on leverage” do.

What is scary is living in a society, where doing something productive most of your life is undesirable.

Save for all those universes where due to leverage your investment goes to zero.

Anyways, go ahead and put 100% of your portfolio in XXXX.P, and enjoy your retirement in 2034!

basically impossible if you stay 3x and below

Why isn't everyone dumping their money into SPXL then? What percentage of your portfolio is leveraged s&p?

How much leverage though?