Lifecycle investing - Page 2

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.

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).

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.

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.

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.

Just adding another voice, don't use leveraged funds for the long term.

David Swensen has a decent book aimed at individual investors that addresses just this. Updates from a shameless admirer:

http://david-swensen.com/

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.

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.