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The expected performance loss with my 30% equity allocation is only about 0.5% to 1% CAGR versus 60/40 so I'm not too worried that I'm ruining my life by not taking more risk.

I also suspect that I will end up with superior long term returns to some more aggressive investors because of emotional reactions they will have during bear markets. I've already seen this in real life. I'm already doing better than some of my friends with higher equity allocations.

Advisors and books never account for those real world effects.
I agree your portfolio is appealing for those reasons, and would be especially more appealing if you had $2M+ (don't think you're there yet though?)

But also that without the backstop of a paid off primary residence, your preferred asset allocation applied to a smallish portfolio has inadequate inflation protection, IMO.
 

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But also that without the backstop of a paid off primary residence, your preferred asset allocation applied to a smallish portfolio has inadequate inflation protection, IMO.
I really don't think 0.5% CAGR will make much of a difference over the long term, so I think mine is just as good as 60/40. There are so many other real world factors that can impact performance that completely blow away such a small difference as 0.5%
 

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Discussion Starter #83
Have you considered increasing your leverage to get to 2 million more quickly? Whether it's using the mortgage, lines of credit, margin, etc. Maybe even something with options, like using SPY calls.

Since people may wonder how I can say that when I'm such a conservative investor myself, I'll add: our situations are different. I don't have a high income, nor a steady income, and just don't make the kind of money a lawyer can make. I need to be more conservative with my investments. I'm only 30% equities. But perhaps someone like Sm5 can afford to take much higher risk like 150% or above 200% equities, since they can bring in enormous income. In my situation though, I have to be more careful to not risk losing what I already have.

Additionally I am somewhat risk averse (or I am concerned about how I might react to sharp drawdowns). Sm5 does not appear to have the same concerns, and that changes everything as well.

I have a friend who has a net worth of around 10M. His annual income ranges from 500K to 1M. He does take incredibly high risks, including options positions to effectively be very long the market. We've debated on this topic but we both agree, he can afford to do that. I can't.
I've actually been thinking of increasing margin for around 6 months or so, just waiting until after taxes are paid for this year and an idea of how busy this year will be for work (need time to keep an eye on the accounts) before doing so. What I've been considering is only a minor amount of margin usage - around $50,000 to $100,000 at most using the available brokerage margin (my cheapest costs of funds) and having this backstopped by my lines of credit in case of any margin calls. This would put at around 110%. I have access to around another $200,000 on lines of credit to backstop (sightly higher interest in the 5.5% range) if necessary. If it goes sideways, is an amount that shouldn't take more than 6 months or less to repay if I get concerned and would provide the opportunity to see how I feel on being this exposed to the market before increasing further. Worst case, instead of selling, just start dumping free cashflow agains the loan to bring down LTV.

Feel free to derail the thread, interesting discussions.
 

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Have you considered increasing your leverage to get to 2 million more quickly? ...

Since people may wonder how I can say that when I'm such a conservative investor myself, I'll add: our situations are different. I don't have a high income, nor a steady income, and just don't make the kind of money a lawyer can make ...
IIRC, most of your threads have tended to be one-size-fits-all, which ignore situational factors.
In my case, I'm wondering why for this thread - different circumstances matter.


I do agree that where one keeps the leverage within what can be dealt with, should things go badly - considering it should be on the table.


Cheers
 

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IIRC, most of your threads have tended to be one-size-fits-all, which ignore situational factors.
In my case, I'm wondering why for this thread - different circumstances matter.
He can clearly afford to take more risk without ruining his life and he's talked about his ability to handle risk.

In many other cases (people in retirement or people who have not demonstrated high risk tolerance) I wouldn't even want to raise the idea. In most circumstances, high risk investments are not a good idea, for most investors. That's why my generic answers are indeed one size fits all.

There are very few investors out of the population who are well positioned to handle higher risks. It's a rare situation. This poster appears to be one of them. Most importantly, he has enough income that he can afford to blow up and start from square one.

My default for most threads is to assume that someone cannot afford to blow up. I think I'm doing the right thing by making that assumption for nearly all cases.
 

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He can clearly afford to take more risk without ruining his life and he's talked about his ability to handle risk.

In many other cases (people in retirement or people who have not demonstrated high risk tolerance) I wouldn't even want to raise the idea. In most circumstances, high risk investments are not a good idea, for most investors. That's why my generic answers are indeed one size fits all ...
From my point of view - the willingness to take into account personal factors seems tied to this thread it about one person with lots of details about that one person. I can recall others in the general threads talking about both factors indicating they are similar but can only recall once the info was paid attention to.

Then too - with the number of people who don't want talk about their resources, I suspect there are far more here that are well positioned than randomly asking people.


IAC ... my curiosity is satisfied so feel free to resume the regular programmer. :biggrin:



Cheers
 

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Discussion Starter #87
Feb 1, 2020

Trying to not be deleterious in keeping this up to date. However, work has been incredibly busy of late, which has made doing anything outside of work difficult. Should get back to normal in a couple weeks through.

Received my quarterly payment from the firm for Q4 2019, which has been promptly placed into an investment account - but is sitting in a brokerage ISA as I've not had time to think how to deploy it within my asset allocation. Bought a bit more Brookfield Energy Partners units with some USD cash that was 'sitting around' and bought into a (very small) position on TD with personal funds -- just enough for the DRIP to start DRIPing (I hold a bunch of it in my corporate account but don't DRIP that account). Also the transfer for TFSA 1 into TFSA 2 occurred, but I see they didn't cancel the remaining monthly purchases -- sneaky. I'll just wait until December and then either withdraw to recontribute since the funds will be minor, or let it re-grow since any drag will be minuscule given the remaining size of the account.

Assets
TFSA 1: $0 (transferred to TFSA 2, but see that the automatic purchase came out after Feb 1)
TFSA 2: $102,000 (funds from TFSA 1 transferred in, also a $4,800 contribution to top off for the year)
RRSP: $228,000 (no contributions)
Non-Registered (CAD): $94,000 ($1,200 of excess cash contributed, just to put it somewhere)
Non-Registered (USD): U$91,000 (no contributions)
Savings Account 1: $6,700
Savings Account 2: $30

Corporate Current Account: $17,000 (left a bit more in here for now as not sure what tax liability will be in a few months)
Corporate Investment Account: $586,000 ($60,000 contributed).

Liabilities
Margin Loan: reported net -- around $22,000 of margin in use.
MasterCard: around $3,000.00 (revolving balance, paid monthly, I put a bunch of court filing on it to get the points)
Visa: $0.
Lines of Credit: $0
Corporate MasterCard: $500 (revolving balance, paid monthly)
Corporate Line of Credit $0

Estimated liquid net worth is now $1,174,000 as of February 7th, not 1st, (rounded and using current values not reported, since I didn't have month end liability numbers handy). Increase of $116,000 or so since Jan 1, 2020, which is quite incredible when you think of it. I guess compounding interest is starting to take hold.
 

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I've actually been thinking of increasing margin for around 6 months or so, just waiting until after taxes are paid for this year and an idea of how busy this year will be for work (need time to keep an eye on the accounts) before doing so.
Curious what you think under the current circumstances of using leverage. Could this be a good opportunity to start? Interest rates have dropped even lower and now markets are getting a significant haircut.

Looking at the S&P 500 leveraged SSO vehicle for example, the price now appears to be down to where it was in late 2017. That's kind of like a chance to time travel 2 years into the past!

Or as you say, one can use traditional margin loans or lines of credit. One could simply buy XIU or XIC for example.


(Disclosure: I don't do any of these things, but am a more conservative investor than you, and my employment is economically sensitive... equities generally correlate with my ability to earn employment income and so I can't afford to have high equity exposure... plus I personally can't stomach the huge draw downs that would come with high equities)
 

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Discussion Starter #89
I wish I was. the last week has been so busy at work I've not had a chance to look at deploying further leverage.

Curious what you think under the current circumstances of using leverage. Could this be a good opportunity to start? Interest rates have dropped even lower and now markets are getting a significant haircut.

Looking at the S&P 500 leveraged SSO vehicle for example, the price now appears to be down to where it was in late 2017. That's kind of like a chance to time travel 2 years into the past!

Or as you say, one can use traditional margin loans or lines of credit. One could simply buy XIU or XIC for example.


(Disclosure: I don't do any of these things, but am a more conservative investor than you, and my employment is economically sensitive... equities generally correlate with my ability to earn employment income and so I can't afford to have high equity exposure... plus I personally can't stomach the huge draw downs that would come with high equities)
 

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Discussion Starter #90
April 1, 2020 (effective)

So Coronavirus hit, and like expected in a leveraged portfolio, it went down. at one point around $350,000, but since then it has come up again quite a bit. Generally, I was pretty OK with the drop, so I guess that means my risk tolerances are within reason. Unfortunately, because I was just a bit lazy, I lost out on some loss harvesting opportunities which, by now have mostly evaporated again. Lesson learned, I need to be a bit more decisive on these opportunities.

I increased a few positions, but generally quite small amounts, and had to move some funds from corporation to personal margin account to reduce risk of a margin call exposure there as, at the time, that account was drawing down quite quickly. I'm regretting not buying more when I was considering in - but was holding out until after tax season.

Still employed and still have work to do, but starting to dry up as clients 'hunker down'. By end of April it is going to be getting quiet. But all indications are Q3 -Q4 to be booming for work, so going to try to enjoy the downtime as much as possible whist stuck inside.

Assets
TFSA 1: $150
TFSA 2: $68,500
RRSP: $188,000 (no contributions)
Non-Registered (CAD): $79,000 ($15,000 contributed to reduce margin on this account)
Non-Registered (USD): U$84,000 (no contributions)
Savings Account 1: $5,700
Savings Account 2: $30

Corporate Current Account: $1,700
Corporate Investment Account: $482,000 ($13,000 (net) withdrawn and applied to non-registered CAD account to reduce margin usage in that account).

Liabilities
Margin Loan: reported net -- around $30,000 of margin in use.
MasterCard: around $3,000.00 (revolving balance, paid monthly)
Visa: $0.
Lines of Credit: $0
Corporate MasterCard: $100 (revolving balance, paid monthly)
Corporate Line of Credit $0

Not sure of estimated liquid net worth as I didn't capture the exchange rate on the first. However, as of April 10th it sits at $1,003,000 as of April 10th, not 1st, (rounded and using current values, which have been increasing for the last few days).
 

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Have you done any planning on how you want to increase leverage, if markets crash again? There's a good possibility markets are now in a bearish period and could fall again. You may get another chance, both for tax loss harvesting and leveraging up.

If you still like the idea it might be good to prepare the plan of what you intend to buy, where you are going to borrow, etc. You could even enter some buy orders now as "good to cancelled" with very low limit prices, so that the buying will happen automatically, unattended.

e.g. buy XIU with limit price 18.60 good to cancelled (or good til date 30 days out), means the most you are willing to pay is 18.60 and the order will last for 30 days
 

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Discussion Starter #92
Have you done any planning on how you want to increase leverage, if markets crash again? There's a good possibility markets are now in a bearish period and could fall again. You may get another chance, both for tax loss harvesting and leveraging up.

If you still like the idea it might be good to prepare the plan of what you intend to buy, where you are going to borrow, etc. You could even enter some buy orders now as "good to cancelled" with very low limit prices, so that the buying will happen automatically, unattended.

e.g. buy XIU with limit price 18.60 good to cancelled (or good til date 30 days out), means the most you are willing to pay is 18.60 and the order will last for 30 days

Actually one step ahead of you.

I've been placing my 'stink bids' this morning along with opening a few positions/increasing existing positions. I'm of the opinion that any rebound after this COVID will likely be done with infrastructure spending, so I've increased my materials exposure slightly (internationally, wouldn't touch this in Canada). Margin usage has increase substantially from April 1st, now closer to $120,000 through some positions opened or increased from April 1st. Beginning to top out on what I want for margin exposure at the moment, however should have around $50,000-$100,000 coming in at the end of the month (depends on what the firm holds back for contingency reserve at their end), but this should allow me to increase exposure a bit further as well -- so hopefully asset prices remain depressed until then.
 

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Although I have a margin account at Questrade, I use it as a cash account. Would you mind to help me for the following queries?

I have 50k worth of VCN in the margin account. If I buy another 20k worth of VCN on margin, how much interest do I need to pay on that 20k. What is the frequency of interest payment in the margin account?

With regards to margin call, if that 20k become 9k, then I would have to deposit more or if that total 70k become 35k, then I would have to deposit more.
 

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I would strongly advise against using Questrade for margin. Their margin rates are very high, currently 7% for borrowing under 100k CAD. Either use a line of credit (3% ish for HELOC) or Interactive Brokers (1.5%) . A LOC is probably safer because you won't have to liquidate immediately under a margin call situation.

 

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I think the chances are extremely slim that a large ETF like VCN could go down 50% from here. From the peak to the most recent bottom was -38%.
Given that you have 50K equity and was adding 20K, I don't think you'd be getting margin calls after a 50% drop.
 

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Discussion Starter #96
Although I have a margin account at Questrade, I use it as a cash account. Would you mind to help me for the following queries?

I have 50k worth of VCN in the margin account. If I buy another 20k worth of VCN on margin, how much interest do I need to pay on that 20k. What is the frequency of interest payment in the margin account?

With regards to margin call, if that 20k become 9k, then I would have to deposit more or if that total 70k become 35k, then I would have to deposit more.

As the other aspects are "asked and answered", on the margin interest, it is based on the amount you are into the loan, calculated daily at your brokers interest rate, and compounded monthly (it gets posted to the account monthly and then interest will accrue on that balance unless you put money in of an equivalent amount).

I like to keep margin usage well away from the threshold for a call, but have the unique situation that I can move funds from my corporate account to balance out if needed - which I did in March when I was getting close to my comfort level on a margin call as your available margin comes down pretty fast in a bear market. Also, remember that your interest can be tax deductible if you follow the CRA requirements, so a higher interest broker, whist not ideal, isn't as bad as it looks on face value. But I'm also a fan of minimizing the interest cost - if that is a HELOC (one of the lower costs of funds) or a refinanced mortgage (even cheaper generally) then that likely is preferable to broker margin lending. Not sure why, the risk to the bank is likely lower on stock margin accounts than real estate (costs more in time and money to liquidate a home, not directly mark to market, etc.)...

Not being a home owner, I don't have these options and rely on my commercial operating line(s) and broker margin; but if you have cheaper sources, use that first IMO. Just make sure you have some safety (non-callable or less likely callable line, to bridge liquidity issues if you have to deposit funds to reduce margin on short notice).
 

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I would strongly advise against using Questrade for margin. Their margin rates are very high, currently 7% for borrowing under 100k CAD. Either use a line of credit (3% ish for HELOC) or Interactive Brokers (1.5%) . A LOC is probably safer because you won't have to liquidate immediately under a margin call situation.
I like the LoC method as well since it's immune to margin calls. I suppose HELOC is one option, but you're putting up your house as collateral.

Don't rule out an unsecured LoC. I've got one from a big bank at prime+2 which is 4.45%. It's not a very high rate, and involves no collateral!
 

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Discussion Starter #98
May 1, 2020

April was an up and down month, as I am sure it was for all. I significantly increased margin exposure during the month - at one point close to $120,000.00, but received a reasonably sized quarterly payment and, absent time to figure out what to buy with it, I placed it into my corporate investment account -- paying down the margin loan at that end. I opened a few new option positions selling covered calls on stocks I hold that are depressed which I see as remaining depressed for the next little while -- might as well make a few minor $$ in the interim (mostly for something to do, these are all less than $1,000 in premium). Also opened some option positions on recovery from Coronavirus -- nothing like a little market timing -- again, very minor position around $4000 in total, gambling practically, for something to do.

Value of accounts have gone up and down all month, and I expect it to continue. Currently down about 10pc YTD. So far the volatility hasn't bothered me in the least.


Assets
TFSA 1: $300
TFSA 2: $92,000
RRSP: $212,000 (no contributions, once I get my Notice of Assessment I'll contribute for the year -- probably in the next 2 weeks)
Non-Registered (CAD): $80,500 (no contributions, reported net of margin of $41,000)
Non-Registered (USD): U$79,000 (no contributions, no margin in use)
Savings Account 1: $4,800
Savings Account 2: $40

Corporate Current Account: $700 (cash moved out for now to reduce margin usage)
Corporate Investment Account: $563,000 ($56,000 contributed, reported net of margin of $21,000).

Liabilities
Margin Loan: reported net -- around $62,0000 of margin in use.
MasterCard: around $1,800.00 (revolving balance, paid monthly. There are a bunch of 1-time expenses on here too from stocking up the freezer at a COVID induced meat sale)
Visa: $0.
Lines of Credit: $0
Corporate MasterCard: $10 (Not much marketing going on, so not much to spend on here)
Corporate Line of Credit $0

As my number from last month was from April 10th, my monthly net account value is slightly off, but since that date it is $1,063,100 (+$60,100). Basically, flat for the year so far based entirely on contributions making up for market losses.
 

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Discussion Starter #99
June 1, 2020

Not much to report in May, still working in the new normal and it has created a bit of a revenue hit, but manageable. Haven't really done much on the investment end of things other than making my annual RRSP contribution. Expenses were rather high this month as car insurance and accounting fees come due, but otherwise, steady ship moving forward.

Assets
TFSA 1: $400
TFSA 2: $96,000
RRSP: $250,000 (made my annual contribution)
Non-Registered (CAD): $84,000 (no contributions, reported net of margin of around $40,000)
Non-Registered (USD): U$84,000 (no contributions, no margin in use)
Savings Account 1: $7,700
Savings Account 2: $40

Corporate Current Account: $8,000 (moved $7,000 cash in to cover higher than anticipated expenses)
Corporate Investment Account: $588,000 ($7,000 withdrawn, reported net of margin of $68,000).

Liabilities
Margin Loan: reported net -- around $108,000 of margin in use currently (so around 10% LTV).
MasterCard: around $3,900 (revolving balance, paid monthly)
Visa: $200.
Lines of Credit: $0
Corporate MasterCard: $2,800 (accounting fees and a few marketing expenses)
Corporate Line of Credit $0

Liquid net worth is around $1,106,000 (+$42,900 from April report). Net worth is now up for the year, but investment returns are still down, all gains remain have been through contributions.XIRR calculations put me at -4.4% return so far this year, but looking long term (since January 2014 as that's as far back as I have numbers) the rate of return remains a (respectable, I hope?) 8.10% annualized return over all accounts even with the COVID crash we are going through.
 

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Discussion Starter #100
August 1, 2020

Pretty quiet couple months. Closed on a purchase of a bit of gold that was in the family, just to keep it in the family. Originally, I thought it would make a fun paperweight to have around and had negotiated the price a year or so back. Little did I expect the price to have climbed so much by the time I closed the transaction. As such, I'm already sitting on a reasonably large gain as soon as I closed on the purchase. Pure windfall.

Assets
TFSA 1: $630
TFSA 2: $101,000.00
RRSP: $260,000
Non-Registered (CAD): $87,000 (reported net of margin of around $40,000)
Non-Registered (USD): U$91,000 (no contributions, no margin in use)
Gold: $106,000
Savings Account 1: $5,500
Savings Account 2: $80

Corporate Current Account: $47,000 ($40,000 is going to go against loans when I can get around to moving the funds, as its very manual to pay down the corporate line - have to go into the bank to do it).
Corporate Investment Account: $603,000 (net of margin of $35,000).

Liabilities
Margin Loan: reported net -- around $75,000 of margin in use .
MasterCard: around $2,600 (revolving balance, paid monthly)
Visa: $0.
Lines of Credit: $0
Corporate MasterCard: $100 )
Corporate Line of Credit $40,000

Liquid net worth is around $1,293,000 (+$187,000 from June 1).
 
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