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'hedgefundie Portfolio' and wisdom tree leveraged ETFs?
Curious if any specific thoughts around the 'hedgefundie' portfolio and the wisdom tree leveraged etfs (NTSX, ITSX, ETSX). The hedgefundie portfolio https://www.bogleheads.org/forum/viewtopic.php?t=288192 is a very large thread on bogleheads that implements a ~60/40 split of UPRO and TMF (3x leveraged SPY & TLT). The wisdom tree etfs are 90/60 stock/bond etfs for USA/Developed/Emerging all paired with treasuries. The hedgefundie portfolio would be managed by m1 finance with their easy to use rebalancing functions.
I enjoyed your topic on 'lower risk through leverage' and the accompanying google sheet. It seems that these approaches make sense mathematically and that someone would stand to gain from them? Despite being more complex.
I'm guessing you already mentioned this in your previous post on leverage, so maybe I am just not getting it. If the wisdom tree ETFs are interesting, do some of them make more sense than others? For example, is the International 90/60 better than in comparison to an intl fund more so than NTSX (USA 90/60) is vs VTI?
Excellent question. During the accumulation phase, especially early on, it makes sense to go 100% equities or potentially even >100% equities, or maybe a leveraged S/B portfolio with more overall volatility target than a 100% equity portfolio, just like that hedgefundie portfolio.
If you plot the efficient frontier, you'll notice that somewhere around 30/70 to 40/60 is the max-Sharpe-Ratio portfolio. Not a bad idea to lever that up, as I have outlined in my post back then (Lower risk through leverage).
I find it a bit troubling that people on Bogleheads are now trying to pump up the equity portion, though. They seem to forget the whole rationale behind it (i.e., max Sharpe + leverage gets you to the left of the efficient frontier).
Also, if you do this with regular rebalancing you will generate a boatload of short-term gains. Transaction costs might be a headache too. Even at M1 where you don't have a commission, you still lose on the b/s spread. It's best to implement this with a futures portfolio. Section 1256 contracts!
But if you're constrained by ETF implementation, pick the ones that have the lowest expense ratios.
And of course, the cautionary tale. This portfolio would have sucked in the 1960s-1980s!
Is it just me or have way more people been talking about using leverage to have >100% equities exposure in the past 1-2 months?
I don't remember anything like this since 2007.
Obviously in hindsight it would've been great to own more equities in this bull run but I'd be very weary to go from <=100% equities to >100% equities now.
It's not just you - IBKR announced a doubling of margin loan balance from last year in their recent Q2 earnings. https://twitter.com/Bonecondor/status/1417617179613274113?s=20
Always hard to call a bubble as it happens but at some point you have to wonder...
That being said I'm still comfortable at 1.2x equity equivalents with a 50% savings rate and total assets 5x annual savings at age 31 (20s were mostly graduate school).
FWIW, there's no way I'd be doing this with a higher asset/savings ratio, I'm counting on substantial dollar-cost averaging through contributions to ride out a repeat of 2000-2001 or 2007-2009 psychologically and financially since I wasn't investing during either.
I also have the potential for a significant payout from stock options in the next 18-24 months. While I don't count on that money as a sure thing at all, it certainly factors into my investing risk appetite.