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, options, futures, or physical assets where applicable. The options columns in the tables below have higher option liquidity, however their expense ratios might be higher for buy and hold.

| Category | ETFs | Options | 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. [Portfolio Visualizer](https://www.portfoliovisualizer.com/asset-correlations) can be used to investigate correlations.

| Category | ETFs/funds | Options | Indexes | 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.

If attempting to use SWVXX as a backing for Cash Secured Puts, see [[SWVXX and Cash Secured Puts|Finance/Investing/SWVXX and Cash Secured Puts]].

Occasional portfolio rebalancing is necessary unless you are only invested in an automatic glide path fund. I just contribute funds to the deficient allocation category. If it requires a much higher amount than the funds available, utilizing leverage can get me to a balanced portfolio quicker.

The paper [Rebalance your portfolio without selling](https://arxiv.org/pdf/2305.12274) describes some more ways to optimize rebalancing.

If I needed to sell $8000, I could by 2 of these. What if I wanted to spend less? I could create a synthetic short: sell a call, and buy a put (essentially funding it with the sold call), at strike price 80. For larger sums, I might use SPY or futures.

The main question to ask yourself is are you using your capital the best way possible? In many cases your brokerage is giving you access to tools and methods to make better use of that capital. They will not tell you all of these methods, which one is best, or hold your hand through the process, unless you pay them.

| $15k of SSO (2x leveraged ETF) | $15k | $30k | 2x |

| $10k of UPRO (3x leveraged ETF) | $10k | $30k | 3x |

| 1 ZEBRA LEAPS in SPY (2 long calls, 1 short call) | $14k | $50k | 3.5x |

This method of using leverage is also referred to as "return stacking", and there are some [ETFs](https://www.returnstacked.com/) that also try to do this for you.

A typical company might use a loan to ultimately produce something worth more than that loan, in a sense making a leveraged bet. You could argue companies would not exist without such leverage. Even credit card debt can be considered a form of very expensive leverage. If you acknowledge leveraging exists throughout the economy, then why not use it to your advantage in your personal finances as well?

The following book provides a good argument for using leverage. The general idea is use high leverage when young and reduce that leverage towards retirement:

- [Website](https://lifecycleinvesting.net/index.html)

[This paper on risk parity](https://www.aqr.com/-/media/AQR/Documents/Insights/Perspectives/Risk-Parity-Why-We-Lever.pdf) generally describes how I use leverage.

- Total value of all equities

- Futures notional exposure

- Positive for long, negative for short

- Futures margin requirement (negative)

Suppose you have $100k and want to leverage to 1.5 into the S&P500. You can buy $50k of SPY or equivalent, and $50k of SSO. That would give you notional exposure of $150k.

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.