[fairity]

> It just feels weird to take a short-term loan (whatever the interest rate) when I have the cash to cover the loan. And if I don’t have the cash to cover the margin loan, I should be working on increasing my emergency fund instead.

I see. Would your thinking change if your emergency fund was sufficiently large but much smaller than your investable cash?

For example, let's say your rainy day fund was $10, and you have $100. You have $90 to invest. In this case, the short-term loan you're taking out could range from $0-270 (the majority of cases would not be covered by your rainy day fund).

[DamnYuppie]

I like the OP don't use margin. Long term it will lead to trouble, it may work for a little while but long term the trend is against you. Especially when you have a larger account they will give you 4x margin, this is a great way to loose a lot of money quickly if the market makes a quick turn against your positions. To be clear the market invariably at some point will quickly turn against you!!

In my opinion, and practice, emergency funds should not be used for investments ever, this includes covering the losses from investing. Yes it can feel like you are not maximizing your returns on that amount of money but its job isn't to generate returns, it is your help smooth out the bumps in the road of life for you. In my experience life can punch hard and it never throws just one punch, it is usually a 1,2,3 combo. That emergency fund is merely there to help raise the chances of you standing on your feet after the vicious flurry.

If you want leverage and you are in the US or have a US based brokerage account use options. By using options your all in is basically the cost of the option and this ensures you will not ever lose more than you paid. PLEASE note the previous sentence is predicated on the golden rule of NEVER WRITE an uncovered/naked option, seriously do not do it!!!! I also use the 5% rule, which no one trade is more than 5% of my portfolio so no one trade will destroy me.

[kd5bjo]

No. If a margin call came in a down market, it would wipe out my emergency fund; that’s the exact opposite of “saving like a pessimist.” If I have $90 to invest, then I have $90 to invest; I’m not going to gamble with someone else’s money whatever the odds.

[smabie]

Let's say you found a strategy that had 10% return and 1% volatility. you really wouldn't leverage this? Even after 4x leverage is applied, it would still be considerably less risky than the S&P 500.

[kd5bjo]

Those numbers sound too good to be true. I’d stay as far away as possible, smelling a con. I certainly wouldn’t invest money I can’t afford to lose.

[smabie]

They're not too good to be true. it's just the people making those kinds of returns aren't taking retail investment.

For example in crypto, market makers are commonly making 100% return. You haven't heard of these firms and they aren't interested in your money.

Market makers usually do quite well for themselves, but are capacity constrained: they can earn stellar returns on tens of millions of capital, but maybe not hundreds of millions or billions. You probably haven't heard of most of these firms and they would prefer to keep it that way.

of course if you want a public example, look at RenTec. They are unique in generating eye popping returns with such a large amount of capital. This is extremely uncommon. However generating comparable returns on 500-1000x less capital is significantly more common. These returns often don't compound tho, as they are severely capacity constrained.

[kd5bjo]

It sounds like people who invest the time to properly learn finance can make a pretty good living at it. If that’s you, I wish you the best of luck.

But I’m a retail investor, and will almost certainly remain one— Not only do I not have the training to come up with these strategies, I don’t have the knowledge to judge the veracity of anyone claiming to sell them to me either. I’m content with my suboptimal portfolio that I don’t have to think about more than once a year, and have more important things to spend my time on.

[erik_seaberg]

Few cryptocurrency holders are using it for payments or building anything that creates value. It’s just zero-sum speculation and FOMO.

Equities are different because their connection (however tenuous) to actual earnings gives them a very steady long-term uptrend. The hard part is just staying in during a crash so you don’t miss the recovery. Half of S&P 500 returns came on its ten best days.