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

I generally 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.

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:

| International Developed | SCHF, SWISX, EFA, VEA | /MFS ([MXEA](https://www.ice.com/products/31196848/MSCI-EAFE-Index-Future)) |

Here is an example of my allocation as of June 2025:

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 generally hold very little cash because inflation quickly eats into its value. I'd rather put that money to better use. This brings me to the next point: putting capital to its best use.

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. 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.

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)

Forum threads:

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:

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 SPLG (a lower cost version of SPY), using the strike price for .90 delta:

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 SPLG:

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)

The /10Y futures represents the current 10-year treasury yield. If the current yield is rising, it means newer bonds are worth more than older bonds. i.e. the return on newly issued bonds are greater than older issued bonds. The inverse should also be true.

ETFs like BND contain a mix of different types of bonds, but should be mostly older issued bonds. So what we should see is an inverse correlation of the /10Y future with the BND price. This indeed looks true based on a graph of BND with /10Y:

In many cases you will use the cash you received using leverage and buy further investments. However, this cash can be used for anything you want. The interest rates on these loans can beat standard bank loans. You can even opt to never pay the loan back, which is essentially the ["buy, borrow, die"](https://smartasset.com/investing/buy-borrow-die-how-the-rich-avoid-taxes) strategy. When you die, whoever inherits your equities will get their cost-basis reset to the value at inheritance, which means no capital gains if they sell.

Taking a cash loan from your stocks is essentially a leveraged trade. You have pulled money out while keeping your stocks, therefore you have increased your leverage. As an example, let's say you have $320k in stocks. Without any loan, your leverage ratio as defined above is:

Utilizing any of the above leveraging strategies, you can achieve the same leverage in multiple ways. In this case we've just used a margin loan.