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Investing Zero to One

General investing advice and information.

Basics

I generally recommend the Bogleheads theory of investing. This involves investing in a few ETFs or mutual funds as a diversified portfolio. For example, a 3 fund portfolio. I use Schwab funds, 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 for each fund. The simplest setup is just use a target date fund, picking your expected retirement year. SWYGX is one such Schwab fund with a target retirement date of 2040.

TDFs follow a glide path 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 and this SEC filing for why.

This brings up an important question: are there TDF-like funds that can be used in a taxable account? Yes, iShares has some. This reddit thread has some good pointers.

In most cases this is all people need to do basic investing with reasonable return.

Diversifying from Bogleheads

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:

  • Gold
    • ETFs: GLD, GLDM, SGOL
    • Futures: /GC, /MGC
    • Physical: Bullionstar
  • Silver
  • Cryptocurrency
    • ETFs: COIN, BITX, MSTR
    • Futures: /MBT

These in sum do not exceed about 8% of my portfolio, and is weighted more towards gold. I reduce my bonds allocation by 8% to make room for these.

The reasoning is to keep some investments non-correlated with stocks/bonds. This correlation matrix site is useful for investigating this.

When trading options, liquidity matters, and Schwab ETFs do not have much option liquidity. For such cases, I might use different ETFs to represent the same category. For example:

  • US Small Cap
    • ETFs: SCHA, VB, IWM
    • Futures: /M2K, /RTY
  • US Large Cap
    • ETFs: SCHX, SPLG, VOO, VV
    • Futures: /MES, /ES
  • US Bonds
    • ETFs: BND, SCHO, SCHR, SCHZ, SWAGX
    • Futures: /10Y
  • International Developed
    • ETFs: SCHF, SWISX, VEA
    • Futures: /MFS (MXEA)
  • International Emerging
    • ETFs: SCHE, VWO

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

Holding cash

Banks are going to give you complete shit 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.

Most brokerages are also not going to give you much for your cash. Excess cash in your brokerage should be put into a money market fund. For example, at Schwab you can use SWVXX. The key point is many brokerages won't automatically sweep to this for you, so it requires you to do trades. Fidelity has better auto-sweep services. You can find good money market funds at Yieldfinder.

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. Every bank, brokerage, and fund wants to hold your money, pay you very little interest, and then go make money off of your 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: you need to put capital to its best use.

Efficient use of capital

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:

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.

Capital efficiency example

Let's say you wanted to invest in the S&P 500 in a buy and hold fashion. The following are some examples and costs associated:

  1. 50 shares of SPY @ $590. This might cost $30k, give you $30k exposure in SPY, and use no leverage.
  2. 1 90-delta deep in the money LEAPS SPY call option. This might cost $19k, give you $60k exposure in SPY, and use 2-3x leverage.
  3. 1 synthetic LEAPS in SPY (long call option, short put option). This might cost $2k, give you $60k exposure in SPY, and use 30x leverage.
  4. 1 /MES future. This might require $2k deposit (it costs nothing), give you $30k exposure in SPY, and use 15x leverage.

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. In all cases you can lose money.

In the 1st case there is no expiration of a contract, so no matter what happens you have shares and can wait until the market moves in your favor. All other cases have expirations.

In the 2nd case, you can lose up to your initial $19k at expiration, but you will likely end up with 100 shares. There is a 10% chance you will lose the full $19k and not end up with any shares at all.

In the 3rd case, you can lose your initial $2k at expiration, but you will end up with 100 shares.

In the 4th case, it doesn't cost anything, but you can lose up to $30k if SPY goes to 0 (very unlikely). More likely is SPY ends up lower at expiration than your trade price, and you pay that difference.

These are worst case scenarios, and calculating the return is more complicated for anything other than the 1st case. If the market moves in your favor, the leveraged instruments will make you much more money than the 1st case. Even though they have expirations, you can continually roll them to future dates to simulate a buy and hold. There is some active management required to keep the positions other than the 1st case.

Leverage

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. I'll explain how to use all of these methods.

A fundamental question is how much leverage you want to use. You can easily bankrupt yourself, and unfortunately brokerages make this all too easy. I prefer the leverage amount of 1.3. For example, if I have $100k cash, I will use that to invest $130k in a diversified portfolio. The key is diversified, because you want to be able to ride out the downswings.

Margin loan

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. It must have been nice during the ZIRP era, but those days are gone for now.

Forex margin loan

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. You also have to keep in mind the cost of conversion, which is more favorable to larger sums. 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. However, this adds some complexity.

Box spreads

A box spread is another way to take a loan, except it is not from your broker, but from the options market. This essentially gives you the best borrowing rate that your broker will never beat, but you will need to trade options which can be quite complicated if you are new to them. This blog post describes the process. I created this video and slides going into the mechanics.

Boxtrades is a good site for figuring out the trade to enter. You can even combine this with a forex carry trade to take the loan in another currency with lower interest rate, but you will need to be able to trade options in non-US markets (e.g. SMI index on Swiss exchange).

There are even some fintech companies such as SyntheticFi offering to do these loans for you.

Options as leverage

There are many strategies to trade options. This focuses mainly on its use as leverage. One option contract represents 100 shares, and its cost is much less than actual shares. That should give you an idea of its leverage.

Compared to futures, options allow you to do leveraged investing based solely on the buying power of your equities without needing any cash or loan. There are at least 2 ways to do this:

  1. Buying deep in the money LEAPS calls.
  2. Synthetic long stock.

DITM LEAPS Calls

Overview video:

Synthetic long stock

Overview video:

You will need to apply for undefined risk options trading ability at your brokerage to do this because it involves selling a PUT (i.e. naked put).

Futures as leverage

TBD

Options

General

Futures

General

Futures margin is different

Futures margin is confusingly not the same as equities margin. When you buy or sell a futures contract, it costs nothing other than the commission. Instead, you put up in cash a good faith deposit. which is called its margin requirement. Every day, depending on whether the position moves for or against you, it is marked to market and funds are either deducted or added to your deposit. You get that deposit back, along with any profit or loss, when the contract closes.

Importantly, a futures contract requires actual cash. This is same for buying or selling a contract. The broker will let you borrow that cash from your equities account via a margin loan. This is different from an options trade which might only use your buying power and not require any cash or loan at all.

The main point is for futures you need to have cash in your account to cover the margin requirement plus any possible losses in the futures contract. Typically people hold 3 to 5 times margin requirement in cash for the contract just to be on the safe side.

Explanation from a Schwab rep:

I see you have been trading /MES so let's say you buy 1 /MES. First you will need to put up the house requirement needed to enter into the trade which will come out of your option BP (buying power), for /MES this is currently 2,550 per contract.

If you hold onto the /MES position through the futures market close, then there will be two different sweeps. The first is M2M (mark to market). M2M accounts for profits and losses during that day using the futures settlement price. Initially M2M will compare your trade price to the futures settlement price. If a profit is made, then we will move the excess profit from the futures cash balance to your cash & sweep vehicle. If it's a loss, then we will take cash from your cash & sweep vehicle and sweep it to the futures cash. If you were to hold /MES through more than one day, then it will compare today's settlement vs yesterday's settlement price.

The second cash sweep that will happen actually happens overnight. You will see this listed as "Cash Sweep" in ThinkorSwim. This overnight sweep is used to get the futures cash balance high enough to cover the exchange's initial requirement which is posted by the CME. As of today, for /MES the exchange initial requirement is 2,412.3 per contract for longs, however this does change every day. The overnight sweep moves the cash, so the futures cash balance equals the exchange initial requirement.