General investing advice and information with a focus towards using leverage.

I recommend the [Bogleheads](https://www.bogleheads.org/wiki/Main_Page) theory of investing. This involves investing in a few ETFs or mutual funds as a diversified portfolio. For example, a [3 fund portfolio](https://www.bogleheads.org/wiki/Three-fund_portfolio). I use [Schwab funds](https://www.bogleheads.org/wiki/Charles_Schwab), but any with low expense ratios will suffice. This is a set and forget strategy that requires very little work.

An important piece is figuring out your [asset allocation](https://www.bogleheads.org/wiki/Asset_allocation) for each fund. The simplest setup is just use a [target date fund](https://www.bogleheads.org/wiki/Target_date_funds), picking your expected retirement year. [SWYGX](https://www.schwabassetmanagement.com/resource/swygx-fact-sheet) is one such Schwab fund with a target retirement date of 2040.

TDFs follow a [glide path](https://www.bogleheads.org/wiki/Glide_paths) that generally invests in stocks when you are young (higher risk), and moves towards bonds as you get older (less risk). You can push the target year later than your normal retirement year if you are comfortable with more risk for a longer time.

Target date funds are not a good idea for a taxable brokerage account. They are mainly only good for a 401k or IRA accounts for tax reasons. See [this thread](https://www.bogleheads.org/forum/viewtopic.php?t=408592) and [this SEC filing](https://www.sec.gov/newsroom/press-releases/2025-21) for why.

This brings up an important question: are there TDF-like funds that can be used in a taxable account? Yes, [iShares](https://www.ishares.com/us/strategies/what-is-a-target-date-fund) has some. [This reddit thread](https://www.reddit.com/r/Bogleheads/comments/1jc8h03/why_vanguard_does_not_offer_a_single_etf_that/) has some good pointers. Another alternative is a balanced fund that does not adjust over time such as [AOR](https://www.ishares.com/us/products/239756/ishares-growth-allocation-etf) or [AOM](https://www.ishares.com/us/products/239765/ishares-moderate-allocation-etf). More info in this [Bogleheads video](https://youtu.be/TYLWfC4fijo?si=zWy5V13Dg_Ft9gIx).

The book [The Simple Path to Wealth](https://www.amazon.com/Simple-Path-Wealth-Revised-Expanded-ebook/dp/B0DT7CM52P) is great and describes an even simpler way by just investing in one total market fund (VTSAX). In most cases this is all people need to do basic investing with reasonable return.

Though the above combination of stocks and bonds is perfectly reasonable, I like to diversify further into a few other categories. Mainly I add the following, either in ETFs, futures, or physical assets where applicable:

| Category | ETFs | Futures | Physical |

These in sum do not exceed about 8% of my portfolio. I reduce my bonds allocation by 8% to make room for these. The reasoning is to keep some investments non-correlated with stocks/bonds.

Schwab ETFs do not have much option liquidity. For such cases, I might use different ETFs or futures to represent the same category. Sometimes it is also cheaper to purchase ETFs with a higher price due to trading fees being based on number of shares. I also may use mutual funds if I don't plan to do much active trading. Some equivalents:

| US Large Cap | SCHX, SPYM, SPY, VOO, VV | /MES, /ES |

| US Bonds | BND, SCHO, SCHR, SCHZ, SWAGX, TLH, TLT | /MTN, /ZN, /10Y ([inversely correlated](#representing-bonds-with-futures)) |

Banks and brokerages give little in return for holding your cash. A HYSA will give you better return, but sometimes suffer from bad checking account features. For example, Wealthfront has very bad check-writing abilities.

Excess cash in your brokerage should be put into a money market fund. For example, at Schwab you can use [SWVXX](https://www.schwabassetmanagement.com/products/swvxx). The key point is many brokerages won't automatically sweep to this for you, so it requires you to do trades. SGOV and BIL are other good ETFs for this. You can find good money market funds at [Yieldfinder](https://yieldfinder.app/money_markets).

If you don't do this yourself, your brokerage will love your idle cash sitting around which they will use to invest and earn them, and not you, money. I do not hold much cash because inflation quickly eats into its value. I'd rather put that money to better use.

By utilizing derivatives when rebalancing, I can turn a buy into a sell and vice versa. The notional values of long or short derivatives can simulate a reduction or an increase in that asset class. As an example, let's say I need to sell $4000 of large cap to rebalance. Instead of selling that stock, I can buy a put, which will have a negative notional value. Say SPYM is trading at 80. A .50 delta PUT 200 days out might cost $400. By buying that, I've created a negative notional value that can be added to my large cap balance:

One of the most important things I've come to realize is that you have to make efficient use of your capital. Tom Sosnoff and Tastytrade have some good videos on this:

| Instrument | Cost | Exposure | Leverage |

| 1 /MES future | $2k | $30k | 15x |

In all cases but the first, you are paying less to have a higher exposure in the same market. Each has a different risk profile, generally increasing with leverage. In all cases you can lose money.

Only the first two cases involve actually owning shares. For derivatives, it is not too important whether you end up with shares or not, as the P/L will be similar to owning the exposed amount. They also have expirations, but you can continually roll them to future dates to simulate a buy and hold.

Adding leverage increases your risk, but increased risk is one way to possibly gain better returns. There are many ways to gain leverage, from using loans, to options, to futures.

A fundamental question is how much leverage you want to use. Brokerages make it all too easy to over-leverage. I usually use a leverage ratio between 1.5 - 2.5. For example, if I have $100k cash, I may use that to invest a notional value of $150k in a diversified portfolio. A typical hedge fund might use a leverage ratio up to 5, so this is not exceedingly risky.

People use leverage all of the time for home loans, and it is not unheard of to use a 80% loan to value ratio for a mortgage, or a leverage ratio of 5. For a $500k home, you might put up $100k cash and take a $400k loan. You would likely do this at a reasonable interest rate, and your hope is the value of the home goes up faster than your interest charges. Your home value could fall, leaving you with a mortgage that is underwater, i.e. you owe more than the home is actually worth. You could also lose your home in a disaster. All of this can apply to investing as well.

When investing the extra cash that comes from leverage, it should be towards your desired asset allocation. That allocation should be a diversified portfolio (e.g. the Bogleheads portfolio). For example, if your current allocation is deficient in US large cap, you can use the cash from leverage to increase that particular allocation.

- Futures notional exposure

- Cash

- Futures profit (positive) or loss (negative)

The numerator of the leverage ratio should include the notional exposure of options. There are different ways of calculating this. A simple way is to use the delta notional exposure (also referred to as delta dollars):

The denominator should include only the market value of the option contract itself.

The numerator of the leverage ratio should include the notional exposure of futures. This is different depending on the contract type. For indexes it is usually:

Futures do not cost anything, however I include the good faith deposit required in the denominator, as well as any gain or loss of the futures position.

When you have stocks, brokers will let you take a margin loan of at least 50% or more of your equity value. This gives you at least 1.5 leverage, at the cost of margin loan interest, which is usually terrible at most brokerages. For example, Schwab will charge you 13% interest as of today (June 2025). If you cannot make more than 13% on the investments you do with leverage, you won't even break even. Interactive Brokers will give you a much better rate, for example 5%. This is an easier number to beat on investment return.

One way to reduce interest charges is using a forex margin loan (sometimes called a carry trade). Your broker may have a much lower interest rate for borrowing in another currency like CHF. Say that is 1.5%. You can take a CHF loan, convert that to USD, and use the funds to invest in US stocks. However, you must now beat both the 1.5% margin interest as well as any forex rate changes. For stable currencies like CHF, I've had good results for multi-year timeframes. However, if there is a big drop in USD value to the foreign currency, your loan repayment can be much bigger than you expected. Many people have done this with JPY due to its low interest rate.

You can use forex futures to lock in an interest rate for the loan. For example, buying a /6S future will offset any currency fluctuation with CHF.

Overview video:

Assume I have $100k invested in plain equities. I want to leverage up to 1.5 to invest in US large cap. I buy DITM LEAPS calls 1 year out in SPYM (a lower cost version of SPY), using the strike price for .90 delta:

- 6 SPYM 2026-03-20 53 CALL

The actual cost of the options might be $12700 in cash. That means $12700 is giving a notional exposure of $28620 in the S&P 500.

This involves buying an ATM call and selling a put at the same strike. It is similar to using futures for leverage.

Overview video:

Assume I have $100k invested in plain equities. I want to leverage up to 1.3 to invest in US large cap. I setup an ATM synthetic long 1 year out in SPYM:

- 4 SPYM 2026-03-20 71 Call

Since they are ATM the delta will be .50 for both. The exposure is:

- [How I Trade Zebras in a 5K-10K Account](https://youtu.be/KVVxPwVdmOo?si=6_D68JKfgJq1bGzU)

- [Put-Call Parity Revisited](https://youtu.be/woU3Ge2KYSc?si=JZnvPoeN-2n5mHrz)

Forum threads:

- [Trading Futures, Should I Use All Cash Balance to Buy a Money Market Fund?](https://www.bogleheads.org/forum/viewtopic.php?t=201254)

Futures let you buy (or sell) into indexes like the S&P 500 and Russell 2000. A long /ES or /MES futures position should be equivalent to holding SPY shares. It is essentially an ETF without fees, however the longer-dated future price will be higher than the current index. There is an inherent loan when you long a future and interest is baked in.

For example, US small cap can be replaced with /RTY or /M2K. If my rebalancing requires I put $10k into US small cap, instead of buying the SCHA ETF, I might instead buy 1 /M2K future, which is currently the same notional value, but costs much less.

Buying BND *might* be equivalent to shorting (selling) /10Y futures. Shorting /10Y means betting that current rates come down, which means bonds at older rates will go up in value. From a portfolio standpoint, bonds are usually included to reduce volatility. They also give some income, so I'm not yet sure if the short futures position can be considered equivalent. It is something to test long term.

That means for our loan of $75k, the interest rate is `(234/75000)` or about 0.3%. That is much lower than 6%. I'm likely calculating this wrong and ignoring other costs, but hopefully the point comes across.

This example is mainly to show that these loan instruments are interchangeable and it all comes down to how you achieve leverage and its associated cost.