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.

Adding leverage

USD margin loan

The next level up is using some leverage. When you have stocks/equity, brokers will let you take a margin loan of at least 50% or more of your equity value. This gives you 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. 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 return.

Forex margin loan (carry trade)

But you can avoid taking a margin loan entirely by utilizing other methods. One such way is with forex (sometimes called carry trade). For example, your broker may have a much lower interest rate for 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 long periods of time. However, if there is a big drop in USD value to the foreign currency, your loan repayment can be much bigger than you expected.