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Lifecycle investing - Page 2

post #16 of 27
Quote:
Originally Posted by tj100 View Post
Call options are permitted by the IRS, but most custodians don't allow them because the odds are that you'll be holding a contract that you can't legally exercise because of the contribution limits. With a contribution limit of just $5K, it's pretty easy to buy a call that would require more cash than you can contribute to exercise. I know what you're thinking - you intend to sell the call, not exercise it, when the time comes - but most compliance departments don't see it that way. They see you buying a contract that they're not going to let you exercise.

That doesn't really make sense...maybe it is time to find a new broker?

You might not be able to contribute enough new cash to exercise a call option, but technically the entire balance of your account can be liquidated to buy the shares.
post #17 of 27
Quote:
Originally Posted by highfalutin View Post
I am in my mid-twenties and have about 20,000 USD in an IRA which is completely invested in a mutual fund called Thrivent Mid Cap Growth A. And I have felt for a while that I should put the money in something with higher risks and higher yields at least until I am thirty.

Dude, that fund is charging you 5.5% front load on top of 1.18% a year in fees!

Don't put another dollar in that shit. The money that is already in there has already taken a hit so it doesn't matter as much...but I can't understand for the life of me how heavily loaded funds still draw contributions (other than scummy financial advisors).
post #18 of 27
Quote:
Originally Posted by otc View Post
That doesn't really make sense...maybe it is time to find a new broker?

You might not be able to contribute enough new cash to exercise a call option, but technically the entire balance of your account can be liquidated to buy the shares.

What if your holdings have crashed and you don't have sufficient securities to liquidate? You've got to remember that the major brokerages' policies mostly exist to protect idiots from themselves (and from suing the brokerage because they did something stupid). This is a pretty easy safeguard. For sophisticated investors, it is stupid - but 99.9% of investors are not sophisticated.
post #19 of 27
Quote:
Originally Posted by otc View Post
but I can't understand for the life of me how heavily loaded funds still draw contributions (other than scummy financial advisors).

I continue to be perplexed that scummy financial advisers still exist. It amazes me that people are still willing to spend 1 to 2% on a commission for a simple trade. Absolutely amazes me.
post #20 of 27
Quote:
Originally Posted by tj100 View Post
I continue to be perplexed that scummy financial advisers still exist. It amazes me that people are still willing to spend 1 to 2% on a commission for a simple trade. Absolutely amazes me.

It is a great conundrum, and in my first job out of college I saw some interesting casualties.

Still, there's a problem that hasn't quite been solved. Back 20 years ago, the median mutual fund investor had $50,000 to invest. Maybe now it's $100K or $150K. Now ask how much work it would take to give this person reasonable advice based on his situation (i.e., not some generic asset allocation in your favorite funds) and a tolerable level of basic service. And divide that cost into his account value. Not a happy number. Anyone who can square that circle and give adequate service for next to no work hours per year will have a good business model.
post #21 of 27
Double your exposure by investing in high-beta securities. As others have correctly pointed out, because of borrowing costs 2x leverage funds don't actually return double your money. They should only be used to make short term bets on the market.
post #22 of 27
Just adding another voice, don't use leveraged funds for the long term.
post #23 of 27
Thread Starter 
I have made a little bit of progress since I started this thread. Now I am just looking for a good introductory book on asset allocation.
post #24 of 27
David Swensen has a decent book aimed at individual investors that addresses just this. Updates from a shameless admirer:

http://david-swensen.com/
post #25 of 27
Quote:
Originally Posted by coolpapaboze View Post
Sounds like they made the right decision.
Do you think margin or leverage are appropriate for a retirement account ? If you want short term 2x swings, look at an ETF like SSO. SSO (a ProShares Ultra ) was cited below, but understand that it gives, or is supposed to yield, 2x the daily return, not 2x a decade-long return.
Quote:
Fund Summary The investment seeks daily investment results, before fees and expenses, which correspond to twice the daily performance of the S&P 500® Index. The fund invests in equity securities and derivatives that Proshare Advisors believe, in combination, should have similar daily performance characteristics as twice (200%) the daily return of the index. It invests typically the rest of the assets in money market instruments. The fund is non-diversified.
post #26 of 27
Quote:
Originally Posted by highfalutin View Post
How hard would it be to create an ETF that tracks the S&P 500 -- times two -- for the long haul? Does it require a degree in finance?

Not hard at all. The hard part is creating such a product that gives liquidity after inception at the stated leverage level while keeping existing shareholders' leverage where it should be. The reason leveraged ETFs don't return 2x or 3x whatever they're tracking over multi-period horizons is due to the way they lever up and down, which creates mismatches between the equity a multi-day holder is levering and the stated multiplier on the ETF.

But more broadly speaking as an investment professional about your plan: don't do it. First, if you want to set-and-forget double leverage on a multi-decade investment, you're exposing yourself to gambler's ruin. The long-run expected value of this investment is zero. Second, you have tons of time until you'll be able to tap this account, so let compounding, the eighth wonder of the world, work its magic.

If you do want to learn about investing, start by reading Ben Graham's "The Intelligent Investor." It's the best intro book on the subject and will really get you thinking about what long-term investing (that phrase should be regarded as redundant) is all about. There are tons of other introductory books on investing that are worthwhile as well.
post #27 of 27
Thread Starter 
Quote:
Originally Posted by pjshapiro View Post
If you do want to learn about investing, start by reading Ben Graham's "The Intelligent Investor." It's the best intro book on the subject and will really get you thinking about what long-term investing (that phrase should be regarded as redundant) is all about. There are tons of other introductory books on investing that are worthwhile as well.
Thanks for that suggestion. I actually just got into The Ivy Portfolio by Faber et al. It seems like the main recommendation of Ivy is to split up one's portfolio evenly between exchange traded funds in domestic stock, foreign stock, bonds, real estate, and commodities.

Right now I can't figure out whether it's better to choose my own set of index-based funds or go full monty into a single actively managed ETF like Cambria Global Tactical. The main problem with Cambria seems to be the combined management fee and expense ratio adding up to more than 2%.

At this point I am pretty much over the leveraging idea and I think the Lifecycle authors must be out of touch with the real world.
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