Interactive Brokers (Best Kept Secret)

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Nathan Drake
Posts: 6234
Joined: Mon Apr 11, 2011 12:28 am

Re: Interactive Brokers (Best Kept Secret)

Post by Nathan Drake »

JackoC wrote: Wed Aug 04, 2021 9:44 am
hithere wrote: Wed Aug 04, 2021 7:34 am
Dagwood wrote: Fri Jul 09, 2021 5:32 am I have no issue with IBK. That being said, I have no interest in buying individual stocks and I have even less interest in borrowing on margin. Margin investing is, in my humble opinion, inappropriate for the vast majority of retail investors and inappropriate for a BH.

The whole BH philosophy in large measure hinges on the discipline to save and invest regularly (and thus defer gratification) and to ignore the short term volatility in the market. I always look at this latter point this way: If over a 20 or 30 year period the large indices like the S&P 500, Russell 1000, the Dow, all have little or zero return, is there anywhere you are going to be able to successfully "hide"? Maybe, but the better plan, as compared to stumbling around and incurring tax and transaction costs along the way, is to do what Jack said: stay the course, stay diversified, keep costs low, and invest as regularly as you can.

That's a long way of saying that BDs that make their money on selling the ability to trade frequently at low cost and margin lending are not where I want to be.
Salt makes food much tastier, but can lead to intoxication and death at high enough doses. I believe the old adage that the dose makes the poison is applicable to margin as well. Everyone talks about how they know people who got wiped out because of margin. Well, plenty of people have died of salt poisoning as well - does that mean that we shouldn't consume salt at all? Of course not. Using obscene amounts of margin (and, to an extent, leverage in general) without regard for the risks is a financial suicide. Using a little bit of margin with well-diversified ETFs is okay and provides a good boost in long-term returns.
I agree. Though I would say previous posters first statement, if limited to 'majority' not 'vast majority' could practically be true. The statement it's 'against BH principal' and whole second paragraph is off base though IMO. It makes various unstated assumptions what the margin borrowing is used for which are not necessarily true, even besides the issue of 'how much'.

Besides just having a leveraged stock position, another straight forward and entirely BH ('minimize costs') application of margin lending is if you have rental real estate (many people on this forum are super stock fans and despise DIY real estate...but that's not a general BH principal, not a valid one anyway). You can have ETF assets in your RE LLC, then borrow against those with IBKR to finance properties at much lower rates than banks charge against the properties themselves, at least for some of your borrowing. As a business expense there's no question about full deductibility of interest cost as there can be with personal margin loans. And there's no reasonable argument against using some leverage in RE investing.

Another as has been covered on many threads is the potential advantage in later life of borrowing against a large appreciated asset position you intend to mainly leave to heirs, rather than liquidating part and paying capital gains tax which the heirs could avoid via the 'basis step up' feature of the current tax code. It does depend on assuming that feature will remain part of the code until your death, IOW it's not a riskless strategy, but it does not in any way involve 'getting in over your head'.

And a simpler benefit is that if you have marginable assets at IBKR and need money in an emergency, you can borrow some amount at a low interest rate. That can substitute for at least *some* of any liquidity reserve ('emergency fund', etc) you'd otherwise set aside earning a low interest rate. Some amount depending on tolerance of risk that the liquidity won't be there when you need it. For example if you assume you'll be able to borrow 20% of your current asset value at IBKR (their current limit is ~75%), you're making a very low risk assumption. The 75% is model based and likely to decline in times of very high volatility, but even were their limit to go all the way down to 50% of value and market value also drop 50%, you could still borrow >20% of the original value. Nor are other forms of contingent liquidity certain so that's not the correct benchmark for comparison. A bank can easily cancel a HELOC when something happens to your credit, or it just wants to reduce its exposure to that business, something which actually happens, whereas broker margin lenders pulling out of that business is a hypothetical and they basically don't care about your personal credit. Of course just having the liquidity in the bank now doesn't present any risk of a lender canceling your borrowing facility, but has an opportunity cost. Fortunately you don't have to address contingent liquidity with just one solution. But planning to borrow a fairly small % of your asset value at IBKR, in an emergency, can be part of your strategy, with no costs unless/until you borrow.
Do you have a strategy for using leverage to invest and how to pay off the loan?

I.e., only 10-20% leverage…only make interest payments as long as they are low…but pay off the loan once your investments return some satisfactory amount?

That’s my biggest hesitation with leverage, how to time moves…
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
rchmx1
Posts: 523
Joined: Sat Oct 26, 2019 6:38 pm

Re: Interactive Brokers (Best Kept Secret)

Post by rchmx1 »

Nathan Drake wrote: Wed Aug 04, 2021 10:35 am
Do you have a strategy for using leverage to invest and how to pay off the loan?

I.e., only 10-20% leverage…only make interest payments as long as they are low…but pay off the loan once your investments return some satisfactory amount?

That’s my biggest hesitation with leverage, how to time moves…
A more conservative way of using leverage than just maintaining a constant dollar amount is to treat it as a way to bring future earnings into the present. If we agree with old adages like "time in the market is better than timing the market," and "the best time to invest is when you have the money to invest," an alternative to DCAing our paychecks into the market each month is to use margin to say invest the next two months worth of paychecks today. Then you'd deposit those next two months of paychecks to pay off the margin, and once the initial margin loan is paid off you do it again. For someone with stable and reliable income, this approach can be a nice way of getting a bit more time in the market for your invested dollars.
Rob Bertram
Posts: 859
Joined: Mon May 05, 2014 12:15 pm

Re: Interactive Brokers (Best Kept Secret)

Post by Rob Bertram »

Nathan Drake wrote: Wed Aug 04, 2021 10:35 am Do you have a strategy for using leverage to invest and how to pay off the loan?

I.e., only 10-20% leverage…only make interest payments as long as they are low…but pay off the loan once your investments return some satisfactory amount?

That’s my biggest hesitation with leverage, how to time moves…
There are a few strategies involving leverage that have been discussed on the forum. Most of them target a specific leverage ratio (e.g., 10%, 20%, or 50% -- based on your risk tolerance). This means that every dollar that you deposit, then you also borrow additional funds on margin in order to keep to that target ratio. When the portfolio appreciates and therefore reduces the ratio of portfolio / debt, then the strategy has you buy more assets to return to your target level. When the market drops which drives up the leverage, the better strategies have you stay the course so that you are not selling assets while they are low.

It goes without saying that many forum members have strong opinions around debt and borrowing in general. It can be abused, so be very aware of the risks that you are assuming.

Here is one example of my discussion on a leveraged portfolio: viewtopic.php?f=10&t=143037

My strategy has a target leverage during the accumulation phase (e.g., 100% leverage) that tapers down to a maintenance level (e.g., 40% leverage) that can support a sustained withdrawal model. During the withdrawal phase, you do not sell assets. Instead, borrow more. Your portfolio should be sufficiently large that withdrawals are extremely small relative to the portfolio value. So to answer your last question, there is no reason to "time your move" as it is a buy and hold strategy. The target holding period is forever.
JackoC
Posts: 4714
Joined: Sun Aug 12, 2018 11:14 am

Re: Interactive Brokers (Best Kept Secret)

Post by JackoC »

Nathan Drake wrote: Wed Aug 04, 2021 10:35 am
JackoC wrote: Wed Aug 04, 2021 9:44 am
hithere wrote: Wed Aug 04, 2021 7:34 am
Dagwood wrote: Fri Jul 09, 2021 5:32 am I have no issue with IBK. That being said, I have no interest in buying individual stocks and I have even less interest in borrowing on margin. Margin investing is, in my humble opinion, inappropriate for the vast majority of retail investors and inappropriate for a BH.
Salt makes food much tastier, but can lead to intoxication and death at high enough doses.
I agree. Though I would say previous posters first statement, if limited to 'majority' not 'vast majority' could practically be true. The statement it's 'against BH principal' and whole second paragraph is off base though IMO. It makes various unstated assumptions what the margin borrowing is used for which are not necessarily true, even besides the issue of 'how much'.

1. Besides just having a leveraged stock position, another straight forward and entirely BH ('minimize costs') application of margin lending is if you have rental real estate ...You can have ETF assets in your RE LLC, then borrow against those with IBKR to finance properties at much lower rates than banks charge against the properties themselves

2. Another as has been covered on many threads is the potential advantage in later life of borrowing against a large appreciated asset position you intend to mainly leave to heirs, rather than liquidating part and paying capital gains tax which the heirs could avoid via the 'basis step up' feature of the current tax code.

3. And a simpler benefit is that if you have marginable assets at IBKR and need money in an emergency, you can borrow some amount at a low interest rate. That can substitute for at least *some* of any liquidity reserve ('emergency fund', etc) you'd otherwise set aside earning a low interest rate.
Do you have a strategy for using leverage to invest and how to pay off the loan?

I.e., only 10-20% leverage…only make interest payments as long as they are low…but pay off the loan once your investments return some satisfactory amount?

That’s my biggest hesitation with leverage, how to time moves…
None of my three examples are about having a more than 100% position in the stock market, that meaning of 'leverage', but to take the three examples

1. Borrowing against ETF's to fund property purchases or renovations: the free cashflow (rent-cash expense) from the property amortizes the loan, just like if I take out a loan from the bank against the property directly. But the margin loan (if from IBKR anyway) has a much lower rate, and none of the considerable paperwork and hoop jumping of a regular commercial real estate loan (long application, list of demands like you set up a new LLC just for that property, keep X months of loan payments on deposit with them at 0% interest, etc. usually a multi-item list; with the margin loan you click 'withdraw' and that's it).

2. The heirs pay off the margin loan by selling some of the highly appreciated (from the time you bought them) assets, but they no longer owe capital gains tax on that sale back to when you bought them, because of the basis step up feature of the tax code. Again that's if willing to assume the basis step up feature remains in the tax code till your death.

3. There is no immediate borrowing in this case. You simply rely on IBKR to lend you a fairly small % of the current value of your ETF's as part of your plan for emergency liquidity. It would again be *part* of a liquidity strategy which also probably includes having some money in the bank. But it might allow having less in the bank. And, I believe margin loans from IBKR are a pretty strictly superior alternative to a HELOC with one bank for contingent liquidity: margin loan again no application process, no fees as long as you don't borrow, lower rate if you do, and any single bank is almost surely more likely to pull the rug out from under you and cancel the HELOC when you need the money than IBKR is likely to cancel your margin borrowing privileges, IMO.

My stock position is <<100%. And if I need 'local' leverage on equities, I use equity index futures, which have a cheaper implied borrowing rate, higher implied lending rate (depending if you're going long or short) than margin even with IBKR. I go long or short equity index futures in my IRA (with TD Ameritrade, better for that particular thing than IBKR IMO) to 'rebalance' my equity position without generating a taxable event each time, since almost all my cash equity holdings are in taxable accounts.
Nathan Drake
Posts: 6234
Joined: Mon Apr 11, 2011 12:28 am

Re: Interactive Brokers (Best Kept Secret)

Post by Nathan Drake »

Rob Bertram wrote: Wed Aug 04, 2021 11:43 am
Nathan Drake wrote: Wed Aug 04, 2021 10:35 am Do you have a strategy for using leverage to invest and how to pay off the loan?

I.e., only 10-20% leverage…only make interest payments as long as they are low…but pay off the loan once your investments return some satisfactory amount?

That’s my biggest hesitation with leverage, how to time moves…
There are a few strategies involving leverage that have been discussed on the forum. Most of them target a specific leverage ratio (e.g., 10%, 20%, or 50% -- based on your risk tolerance). This means that every dollar that you deposit, then you also borrow additional funds on margin in order to keep to that target ratio. When the portfolio appreciates and therefore reduces the ratio of portfolio / debt, then the strategy has you buy more assets to return to your target level. When the market drops which drives up the leverage, the better strategies have you stay the course so that you are not selling assets while they are low.

It goes without saying that many forum members have strong opinions around debt and borrowing in general. It can be abused, so be very aware of the risks that you are assuming.

Here is one example of my discussion on a leveraged portfolio: viewtopic.php?f=10&t=143037

My strategy has a target leverage during the accumulation phase (e.g., 100% leverage) that tapers down to a maintenance level (e.g., 40% leverage) that can support a sustained withdrawal model. During the withdrawal phase, you do not sell assets. Instead, borrow more. Your portfolio should be sufficiently large that withdrawals are extremely small relative to the portfolio value. So to answer your last question, there is no reason to "time your move" as it is a buy and hold strategy. The target holding period is forever.
Thanks, a lot to read through…so when do you directly pay off the loan vs just interest payments?
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
Rob Bertram
Posts: 859
Joined: Mon May 05, 2014 12:15 pm

Re: Interactive Brokers (Best Kept Secret)

Post by Rob Bertram »

Nathan Drake wrote: Wed Aug 04, 2021 12:02 pm Thanks, a lot to read through…so when do you directly pay off the loan vs just interest payments?
My strategy has me never paying off the margin loan. The expected margin loan rate is less than 1%. The expected return on a total-stock portfolio (e.g., VTI) is significantly above that. Any dollar that might go towards paying off the loan would be better spent invested in my portfolio.

What would inspire you to pay off the margin loan?
rchmx1
Posts: 523
Joined: Sat Oct 26, 2019 6:38 pm

Re: Interactive Brokers (Best Kept Secret)

Post by rchmx1 »

Rob Bertram wrote: Wed Aug 04, 2021 12:24 pm
Nathan Drake wrote: Wed Aug 04, 2021 12:02 pm Thanks, a lot to read through…so when do you directly pay off the loan vs just interest payments?
My strategy has me never paying off the margin loan. The expected margin loan rate is less than 1%. The expected return on a total-stock portfolio (e.g., VTI) is significantly above that. Any dollar that might go towards paying off the loan would be better spent invested in my portfolio.

What would inspire you to pay off the margin loan?
Knowing that you want to use some portion of your available margin for a real life purchase, like a car or home down payment. Or concerns about your future cash flow or other types of financial stressors coming up (health problems), which would make you want to ensure that you have some portion of that margin available if necessary to withdraw in cash.
tj
Posts: 9368
Joined: Wed Dec 23, 2009 11:10 pm

Re: Interactive Brokers (Best Kept Secret)

Post by tj »

Rob Bertram wrote: Wed Aug 04, 2021 12:24 pm
Nathan Drake wrote: Wed Aug 04, 2021 12:02 pm Thanks, a lot to read through…so when do you directly pay off the loan vs just interest payments?
My strategy has me never paying off the margin loan. The expected margin loan rate is less than 1%. The expected return on a total-stock portfolio (e.g., VTI) is significantly above that. Any dollar that might go towards paying off the loan would be better spent invested in my portfolio.

What would inspire you to pay off the margin loan?
You don't anticipate the interest rate on the margin loan ever being larger than you want to keep it? That seems like recency bias, no?
Rob Bertram
Posts: 859
Joined: Mon May 05, 2014 12:15 pm

Re: Interactive Brokers (Best Kept Secret)

Post by Rob Bertram »

rchmx1 wrote: Wed Aug 04, 2021 1:42 pm
Rob Bertram wrote: Wed Aug 04, 2021 12:24 pm
Nathan Drake wrote: Wed Aug 04, 2021 12:02 pm Thanks, a lot to read through…so when do you directly pay off the loan vs just interest payments?
My strategy has me never paying off the margin loan. The expected margin loan rate is less than 1%. The expected return on a total-stock portfolio (e.g., VTI) is significantly above that. Any dollar that might go towards paying off the loan would be better spent invested in my portfolio.

What would inspire you to pay off the margin loan?
Knowing that you want to use some portion of your available margin for a real life purchase, like a car or home down payment. Or concerns about your future cash flow or other types of financial stressors coming up (health problems), which would make you want to ensure that you have some portion of that margin available if necessary to withdraw in cash.
Investing with leverage increases the complexity of our strategy and gives us more options. But the foundational pillars of investing remain the same. We should not risk money that we cannot afford to lose, so large planned expenses like a home down payment shouldn't be included in a risky portfolio. If I have a planned purchase, then either I do not put that money into the leveraged portfolio or I withdraw the nominal amount from my account. Relative to the portfolio value, the purchase might be relatively insignificant.

My leveraged strategy follows a "lifecycle" investing approach where I take large calculated risks in the beginning with small amounts of money and smaller calculated risks with larger amounts later. Combined with a high savings rate ($3k/month in my case), portfolios can see some sizeable growth in the first 10 years. I have only been investing in my margin account for 7 years and am up to 7 figures. I cannot predict the future, but I would not be surprised if the account crosses 8 figures in the next 7.

If you want more detailed answers, perhaps you can supply some specific numbers so that we can dive into your scenarios. We discussed hundreds of scenarios in that mega-thread that I listed earlier. Hypothetical catastrophic scenarios that would destroy any portfolio (e.g., massive unanticipated medical expenses) caused problems with the leverage strategy as well, but we addressed simple problems like "sequence of returns". The goal of my leveraged strategy is that it is designed to handle a predictable stream of income despite any short-term market fluctuations.
Rob Bertram
Posts: 859
Joined: Mon May 05, 2014 12:15 pm

Re: Interactive Brokers (Best Kept Secret)

Post by Rob Bertram »

tj wrote: Wed Aug 04, 2021 2:06 pm
Rob Bertram wrote: Wed Aug 04, 2021 12:24 pm
Nathan Drake wrote: Wed Aug 04, 2021 12:02 pm Thanks, a lot to read through…so when do you directly pay off the loan vs just interest payments?
My strategy has me never paying off the margin loan. The expected margin loan rate is less than 1%. The expected return on a total-stock portfolio (e.g., VTI) is significantly above that. Any dollar that might go towards paying off the loan would be better spent invested in my portfolio.

What would inspire you to pay off the margin loan?
You don't anticipate the interest rate on the margin loan ever being larger than you want to keep it? That seems like recency bias, no?
I can't see into the future, but the market seems to think that interest rates will remain low for the next decade or three. For example, the treasury yield curve is practically flat, and 30-year treasuries are under 2%. https://www.treasury.gov/resource-cente ... data=yield
Nathan Drake
Posts: 6234
Joined: Mon Apr 11, 2011 12:28 am

Re: Interactive Brokers (Best Kept Secret)

Post by Nathan Drake »

Rob Bertram wrote: Thu Aug 05, 2021 11:17 am
rchmx1 wrote: Wed Aug 04, 2021 1:42 pm
Rob Bertram wrote: Wed Aug 04, 2021 12:24 pm
Nathan Drake wrote: Wed Aug 04, 2021 12:02 pm Thanks, a lot to read through…so when do you directly pay off the loan vs just interest payments?
My strategy has me never paying off the margin loan. The expected margin loan rate is less than 1%. The expected return on a total-stock portfolio (e.g., VTI) is significantly above that. Any dollar that might go towards paying off the loan would be better spent invested in my portfolio.

What would inspire you to pay off the margin loan?
Knowing that you want to use some portion of your available margin for a real life purchase, like a car or home down payment. Or concerns about your future cash flow or other types of financial stressors coming up (health problems), which would make you want to ensure that you have some portion of that margin available if necessary to withdraw in cash.
Investing with leverage increases the complexity of our strategy and gives us more options. But the foundational pillars of investing remain the same. We should not risk money that we cannot afford to lose, so large planned expenses like a home down payment shouldn't be included in a risky portfolio. If I have a planned purchase, then either I do not put that money into the leveraged portfolio or I withdraw the nominal amount from my account. Relative to the portfolio value, the purchase might be relatively insignificant.

My leveraged strategy follows a "lifecycle" investing approach where I take large calculated risks in the beginning with small amounts of money and smaller calculated risks with larger amounts later. Combined with a high savings rate ($3k/month in my case), portfolios can see some sizeable growth in the first 10 years. I have only been investing in my margin account for 7 years and am up to 7 figures. I cannot predict the future, but I would not be surprised if the account crosses 8 figures in the next 7.

If you want more detailed answers, perhaps you can supply some specific numbers so that we can dive into your scenarios. We discussed hundreds of scenarios in that mega-thread that I listed earlier. Hypothetical catastrophic scenarios that would destroy any portfolio (e.g., massive unanticipated medical expenses) caused problems with the leverage strategy as well, but we addressed simple problems like "sequence of returns". The goal of my leveraged strategy is that it is designed to handle a predictable stream of income despite any short-term market fluctuations.
$3K / mo ($36K/yr) to 1M in 7 years seems....unrealistic even with leverage? 8 figures in 7 more years even more unrealistic unless I'm missing something. How leveraged are you?
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
Rob Bertram
Posts: 859
Joined: Mon May 05, 2014 12:15 pm

Re: Interactive Brokers (Best Kept Secret)

Post by Rob Bertram »

Nathan Drake wrote: Thu Aug 05, 2021 7:24 pm
Rob Bertram wrote: Thu Aug 05, 2021 11:17 am
rchmx1 wrote: Wed Aug 04, 2021 1:42 pm
Rob Bertram wrote: Wed Aug 04, 2021 12:24 pm
Nathan Drake wrote: Wed Aug 04, 2021 12:02 pm Thanks, a lot to read through…so when do you directly pay off the loan vs just interest payments?
My strategy has me never paying off the margin loan. The expected margin loan rate is less than 1%. The expected return on a total-stock portfolio (e.g., VTI) is significantly above that. Any dollar that might go towards paying off the loan would be better spent invested in my portfolio.

What would inspire you to pay off the margin loan?
Knowing that you want to use some portion of your available margin for a real life purchase, like a car or home down payment. Or concerns about your future cash flow or other types of financial stressors coming up (health problems), which would make you want to ensure that you have some portion of that margin available if necessary to withdraw in cash.
Investing with leverage increases the complexity of our strategy and gives us more options. But the foundational pillars of investing remain the same. We should not risk money that we cannot afford to lose, so large planned expenses like a home down payment shouldn't be included in a risky portfolio. If I have a planned purchase, then either I do not put that money into the leveraged portfolio or I withdraw the nominal amount from my account. Relative to the portfolio value, the purchase might be relatively insignificant.

My leveraged strategy follows a "lifecycle" investing approach where I take large calculated risks in the beginning with small amounts of money and smaller calculated risks with larger amounts later. Combined with a high savings rate ($3k/month in my case), portfolios can see some sizeable growth in the first 10 years. I have only been investing in my margin account for 7 years and am up to 7 figures. I cannot predict the future, but I would not be surprised if the account crosses 8 figures in the next 7.

If you want more detailed answers, perhaps you can supply some specific numbers so that we can dive into your scenarios. We discussed hundreds of scenarios in that mega-thread that I listed earlier. Hypothetical catastrophic scenarios that would destroy any portfolio (e.g., massive unanticipated medical expenses) caused problems with the leverage strategy as well, but we addressed simple problems like "sequence of returns". The goal of my leveraged strategy is that it is designed to handle a predictable stream of income despite any short-term market fluctuations.
$3K / mo ($36K/yr) to 1M in 7 years seems....unrealistic even with leverage? 8 figures in 7 more years even more unrealistic unless I'm missing something. How leveraged are you?
Most of that is the multiplicative power of compounding on top of leverage. I started with $50k. Regulation T requires at least $10k to open a margin account, and I wanted to be able to suffer a paper loss of 80% and still be able to transact. I started with a balanced portfolio of stocks and bonds but later simplified to an all-stock portfolio that was 2x leveraged (+100% margin). In other words, for every dollar that I deposit (or dollar of appreciation), I would borrow an additional dollar on margin.

Here is a trivial scenario to demonstrate how that plays out in practice. I modeled this in Excel quickly, so apologies if there are mistakes. For the sake of simplicity, let's say we start in January. In this example,
  1. the portfolio appreciates by 1% each month,
  2. we start with $50k,
  3. we add $3k cash at the beginning of each month, and
  4. we "re-balance" to maintain the target leverage ratio every month.
Here is how it plays out:
In the beginning of the month (January), we deposit $50k and borrow $50k to invest. The resulting leveraged portfolio has a $100k value.
At the end of the month, the portfolio has grown by 1% and is now worth $101k.
At the beginning of February, we deposit our $3k cash and borrow $4k (to match $3k from cash and $1k appreciation). Total borrowed is $54k = $50k
+$4k. The resulting portfolio is now worth $108k ($101 + $7k).
Repeat this through the end of December. We should have:
  • $83k ($50 start + 11 months x 3$k) cash deposited
  • Around $98,674.86 borrowed (ignoring interest)
  • Around $199,323.22 portfolio value (ignoring interest, and taking 1% appreciation for December)
  • Roughly $735.34 interest at 1%
  • Net value of roughly $99,913. This returned $16,913 on the $83k that was deposited.
A regular portfolio invested with the same amounts of cash would have ended with a value of $91,388.76 and returned $8,388.76 on the $83k that was deposited. And you can see that the leveraged portfolio returned a little more than twice the leveraged portfolio even after factoring the interest ($16,913 / $8,388.76 = 2.02).

Now as we go into the second year, we can start to see where the leveraged portfolio has a clear advantage. It starts at roughly $200k while the regular portfolio is just over $91k. Here is where we stand at the end of the second year:
  • Leveraged portfolio position: $333,143.85
  • Net value: $166,518.95
  • Starting value + contributions: $99,913.01 + 12 * $3k = $135,913.01
  • Net return: $166,518.95 - $135,913.01= $30,605.94
The regular portfolio would have ended the second year with a net value of $141,407.13 and a return of $14,018.37. Comparing returns, the leveraged portfolio is compounding on its lead: $30,605.94 / $14,018.37 = 2.18.

I encourage you to model this in Excel and take the scenario to the end of the 7th year and see where it lands. Obviously, the markets will never be this predictable and will have down periods. Staying the course might be your biggest challenge when we have a panic. Pick a level of leverage that works best for you and fits your risk tolerance. Personally, 2x is my limit during my accumulation phase. That will taper down to 1.5x when I stop accumulation and start withdrawing funds. Yours may be completely different.
Nathan Drake
Posts: 6234
Joined: Mon Apr 11, 2011 12:28 am

Re: Interactive Brokers (Best Kept Secret)

Post by Nathan Drake »

Rob Bertram wrote: Fri Aug 06, 2021 11:34 am
Nathan Drake wrote: Thu Aug 05, 2021 7:24 pm
Rob Bertram wrote: Thu Aug 05, 2021 11:17 am
rchmx1 wrote: Wed Aug 04, 2021 1:42 pm
Rob Bertram wrote: Wed Aug 04, 2021 12:24 pm

My strategy has me never paying off the margin loan. The expected margin loan rate is less than 1%. The expected return on a total-stock portfolio (e.g., VTI) is significantly above that. Any dollar that might go towards paying off the loan would be better spent invested in my portfolio.

What would inspire you to pay off the margin loan?
Knowing that you want to use some portion of your available margin for a real life purchase, like a car or home down payment. Or concerns about your future cash flow or other types of financial stressors coming up (health problems), which would make you want to ensure that you have some portion of that margin available if necessary to withdraw in cash.
Investing with leverage increases the complexity of our strategy and gives us more options. But the foundational pillars of investing remain the same. We should not risk money that we cannot afford to lose, so large planned expenses like a home down payment shouldn't be included in a risky portfolio. If I have a planned purchase, then either I do not put that money into the leveraged portfolio or I withdraw the nominal amount from my account. Relative to the portfolio value, the purchase might be relatively insignificant.

My leveraged strategy follows a "lifecycle" investing approach where I take large calculated risks in the beginning with small amounts of money and smaller calculated risks with larger amounts later. Combined with a high savings rate ($3k/month in my case), portfolios can see some sizeable growth in the first 10 years. I have only been investing in my margin account for 7 years and am up to 7 figures. I cannot predict the future, but I would not be surprised if the account crosses 8 figures in the next 7.

If you want more detailed answers, perhaps you can supply some specific numbers so that we can dive into your scenarios. We discussed hundreds of scenarios in that mega-thread that I listed earlier. Hypothetical catastrophic scenarios that would destroy any portfolio (e.g., massive unanticipated medical expenses) caused problems with the leverage strategy as well, but we addressed simple problems like "sequence of returns". The goal of my leveraged strategy is that it is designed to handle a predictable stream of income despite any short-term market fluctuations.
$3K / mo ($36K/yr) to 1M in 7 years seems....unrealistic even with leverage? 8 figures in 7 more years even more unrealistic unless I'm missing something. How leveraged are you?
Most of that is the multiplicative power of compounding on top of leverage. I started with $50k. Regulation T requires at least $10k to open a margin account, and I wanted to be able to suffer a paper loss of 80% and still be able to transact. I started with a balanced portfolio of stocks and bonds but later simplified to an all-stock portfolio that was 2x leveraged (+100% margin). In other words, for every dollar that I deposit (or dollar of appreciation), I would borrow an additional dollar on margin.

Here is a trivial scenario to demonstrate how that plays out in practice. I modeled this in Excel quickly, so apologies if there are mistakes. For the sake of simplicity, let's say we start in January. In this example,
  1. the portfolio appreciates by 1% each month,
  2. we start with $50k,
  3. we add $3k cash at the beginning of each month, and
  4. we "re-balance" to maintain the target leverage ratio every month.
Here is how it plays out:
In the beginning of the month (January), we deposit $50k and borrow $50k to invest. The resulting leveraged portfolio has a $100k value.
At the end of the month, the portfolio has grown by 1% and is now worth $101k.
At the beginning of February, we deposit our $3k cash and borrow $4k (to match $3k from cash and $1k appreciation). Total borrowed is $54k = $50k
+$4k. The resulting portfolio is now worth $108k ($101 + $7k).
Repeat this through the end of December. We should have:
  • $83k ($50 start + 11 months x 3$k) cash deposited
  • Around $98,674.86 borrowed (ignoring interest)
  • Around $199,323.22 portfolio value (ignoring interest, and taking 1% appreciation for December)
  • Roughly $735.34 interest at 1%
  • Net value of roughly $99,913. This returned $16,913 on the $83k that was deposited.
A regular portfolio invested with the same amounts of cash would have ended with a value of $91,388.76 and returned $8,388.76 on the $83k that was deposited. And you can see that the leveraged portfolio returned a little more than twice the leveraged portfolio even after factoring the interest ($16,913 / $8,388.76 = 2.02).

Now as we go into the second year, we can start to see where the leveraged portfolio has a clear advantage. It starts at roughly $200k while the regular portfolio is just over $91k. Here is where we stand at the end of the second year:
  • Leveraged portfolio position: $333,143.85
  • Net value: $166,518.95
  • Starting value + contributions: $99,913.01 + 12 * $3k = $135,913.01
  • Net return: $166,518.95 - $135,913.01= $30,605.94
The regular portfolio would have ended the second year with a net value of $141,407.13 and a return of $14,018.37. Comparing returns, the leveraged portfolio is compounding on its lead: $30,605.94 / $14,018.37 = 2.18.

I encourage you to model this in Excel and take the scenario to the end of the 7th year and see where it lands. Obviously, the markets will never be this predictable and will have down periods. Staying the course might be your biggest challenge when we have a panic. Pick a level of leverage that works best for you and fits your risk tolerance. Personally, 2x is my limit during my accumulation phase. That will taper down to 1.5x when I stop accumulation and start withdrawing funds. Yours may be completely different.
That’s impressive but it’s a pretty high amount of margin. The last 10 years have been great outside of a few small hiccups.

I’m wondering about a situation where this could blow up significantly
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Re: Interactive Brokers (Best Kept Secret)

Post by Rob Bertram »

Nathan Drake wrote: Fri Aug 06, 2021 2:56 pm That’s impressive but it’s a pretty high amount of margin. The last 10 years have been great outside of a few small hiccups.

I’m wondering about a situation where this could blow up significantly
Those "hiccups" (specifically, sharp drawdowns) are what could destroy a leveraged portfolio if one gets too greedy. And you need to worry about intra-day lows and not just the open/close values as a dip could trigger a margin call. In the thread that I linked earlier, we went through a lot of doomsday scenarios. And I back tested with all available information that we had in 2014. With my savings rate, a maximum 2.2x leverage ratio would survive until about $1m notional value. I rounded that down to 2.0x in case the future is more volatile than the past.

Between $1-2m notional (i.e., "net") value, market moves could be significantly bigger than my monthly contributions, so I'll let the leverage ratio drift down to 1.75x. Between, $2-5m notional, I'll drift down to 1.65x which should survive any historical market crash. I won't need to draw from this account for 20 or 30 years, but when I do, I'll lower my leverage to 1.5x. At that point, the portfolio will be well into 8 figures and possibly 9. My modest annual income needs would be a tiny fraction of the portfolio value.

There are supplemental strategies to get an extra percentage or two. For example, buy some certificates of deposit that give a few percentage above the margin rate. Open a HELOC and pay down your home mortgage instead of contributing to your leveraged account but maintain leverage as if you had. If the market moves down, use the HELOC to keep the portfolio afloat. I don't do any of these because I like to keep things simple, but it could be done if someone wanted to watch the markets like a hawk and optimize their net worth.
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Re: Interactive Brokers (Best Kept Secret)

Post by calwatch »

Rob, did you go to portfolio margin for the added cushion? What would you have done in March 2020 when the stock market took a sudden dive and it seemed like the end of the world was going to happen?

I am leveraged on my IB speculative account but the account is relatively small as I've found better value just letting it ride in index funds, and using my HELOC as leverage instead, because my HELOC rate is stickier than IB's rate (although neither are like a fixed rate mortgage).
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Re: Interactive Brokers (Best Kept Secret)

Post by Rob Bertram »

calwatch wrote: Fri Aug 06, 2021 7:42 pm Rob, did you go to portfolio margin for the added cushion? What would you have done in March 2020 when the stock market took a sudden dive and it seemed like the end of the world was going to happen?
Yes, I updated my account to Portfolio Margin once I hit $200k notional value. It requires $110k to qualify and a minimum of $100k to keep. If your account drops below $100k, they prevent any margin-increasing trades.

So what did I do in March 2020 when the market panicked? It is not a hypothetical question because I've been practicing my leveraged strategy since 2014. I stayed the course and tax loss harvested (TLH) while I watched the value drop by 80%. I did switch to e-mini futures instead of total-market stock ETFs as part of my TLH strategy. Those have a 4% margin requirement as opposed to a 10% for total-market ETFs.

I also sold about $45k of employee stock and moved that money into my IB account where I purchased about $200k more e-mini futures. This was pure market timing, but I figured that the market was already down more than 30% and was unlikely to drop another 20%.

There has been a lot of market turbulence. While 2020 was definitely a wild ride, there have been worse in recent history. A total-stock portfolio isn't for everyone as their risk tolerance might not allow them to stay the course. And even fewer can handle leveraged volatility, so keep that in mind. The returns are higher but so is the risk.
calwatch wrote: Fri Aug 06, 2021 7:42 pm I am leveraged on my IB speculative account but the account is relatively small as I've found better value just letting it ride in index funds, and using my HELOC as leverage instead, because my HELOC rate is stickier than IB's rate (although neither are like a fixed rate mortgage).
There are many roads to Dublin. It is good to have options in terms of accounts so that you can keep your borrowing costs low. And I'm glad to see that you are not just focused on today's costs but tomorrow's as well.
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Re: Interactive Brokers (Best Kept Secret)

Post by calwatch »

Rob Bertram wrote: Sat Aug 07, 2021 11:01 am
calwatch wrote: Fri Aug 06, 2021 7:42 pm I am leveraged on my IB speculative account but the account is relatively small as I've found better value just letting it ride in index funds, and using my HELOC as leverage instead, because my HELOC rate is stickier than IB's rate (although neither are like a fixed rate mortgage).
There are many roads to Dublin. It is good to have options in terms of accounts so that you can keep your borrowing costs low. And I'm glad to see that you are not just focused on today's costs but tomorrow's as well.
To be clear, this strategy was somewhat accidental as the 2020 COVID crisis was hitting. I cashed out all of my HELOC in April 2020 due to fear that they would close lines of credit like many banks did in 2008, and put it in short and intermediate term corporate bonds that were implicitly backed by the Treasury. As conditions eased I shifted it over gradually to stock index funds. If there was a shock rate increase I could liquidate my I Bonds and EE Bonds and play around with my 457 allocation and liquidate all my fixed income into paying off my HELOC. But looking at the prime rate history, the likelihood of an increase seems less likely than the constantly fluctuating IBKR base rate.

I've done futures on IB and gained and lost tens of thousands in a day. I use IB only for speculation and most of my money is with the big brokers in index funds. I like the IBKR app and use it as my default for monitoring a watchlist, but I switched to Lite to avoid paying market data fees, which I was doing recently since I stopped trading the speculative account. Previously I would sell out of the money covered calls on the stocks I held just to generate commission. Plus the market data fees are not tax deductible, but the margin interest is, and if I'm paying about the same in market data fees and additional margin interest, I might as well pay the interest.
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Re: Interactive Brokers (Best Kept Secret)

Post by comeinvest »

Rob Bertram wrote: Sat Aug 07, 2021 11:01 am
calwatch wrote: Fri Aug 06, 2021 7:42 pm Rob, did you go to portfolio margin for the added cushion? What would you have done in March 2020 when the stock market took a sudden dive and it seemed like the end of the world was going to happen?
Yes, I updated my account to Portfolio Margin once I hit $200k notional value. It requires $110k to qualify and a minimum of $100k to keep. If your account drops below $100k, they prevent any margin-increasing trades.

So what did I do in March 2020 when the market panicked? It is not a hypothetical question because I've been practicing my leveraged strategy since 2014. I stayed the course and tax loss harvested (TLH) while I watched the value drop by 80%. I did switch to e-mini futures instead of total-market stock ETFs as part of my TLH strategy. Those have a 4% margin requirement as opposed to a 10% for total-market ETFs.

I also sold about $45k of employee stock and moved that money into my IB account where I purchased about $200k more e-mini futures. This was pure market timing, but I figured that the market was already down more than 30% and was unlikely to drop another 20%.

There has been a lot of market turbulence. While 2020 was definitely a wild ride, there have been worse in recent history. A total-stock portfolio isn't for everyone as their risk tolerance might not allow them to stay the course. And even fewer can handle leveraged volatility, so keep that in mind. The returns are higher but so is the risk.
calwatch wrote: Fri Aug 06, 2021 7:42 pm I am leveraged on my IB speculative account but the account is relatively small as I've found better value just letting it ride in index funds, and using my HELOC as leverage instead, because my HELOC rate is stickier than IB's rate (although neither are like a fixed rate mortgage).
There are many roads to Dublin. It is good to have options in terms of accounts so that you can keep your borrowing costs low. And I'm glad to see that you are not just focused on today's costs but tomorrow's as well.
"I stayed the course and tax loss harvested (TLH) while I watched the value drop by 80%."
"I also sold about $45k of employee stock and moved that money into my IB account where I purchased about $200k more e-mini futures. This was pure market timing, but I figured that the market was already down more than 30% and was unlikely to drop another 20%." -

It looks like you don't deleverage when the market goes down. You even add positions. This was pure luck. The market can and has dropped more than 50%. You generated relatively high returns, assuming greatly increased risk, and you were lucky so far.

Playing risky strategies with part of your assets and adding external reserve accounts when needed is also dishonest; your total leverage based on your total NAV, and the average return on your total assets, is what matters.
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Re: Interactive Brokers (Best Kept Secret)

Post by LadyGeek »

comeinvest wrote: Sat Aug 07, 2021 4:43 pm Playing risky strategies with part of your assets and adding external reserve accounts when needed is also dishonest; your total leverage based on your total NAV, and the average return on your total assets, is what matters.
Just to clarify what you said - Changing investment strategies for part of the portfolio, along with adding reserves, is not the correct way to evaluate how your portfolio performs. Is that the intent? I want to be sure that the use of "dishonest" is taken in the right context.
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Re: Interactive Brokers (Best Kept Secret)

Post by Rob Bertram »

I took the liberty of re-organizing the quote so that your statements were attributed to the relevant topic.
comeinvest wrote: Sat Aug 07, 2021 4:43 pm It looks like you don't deleverage when the market goes down. You even add positions. This was pure luck. The market can and has dropped more than 50%. You generated relatively high returns, assuming greatly increased risk, and you were lucky so far.
My leveraged strategy is "buy and hold" forever. So, the primary deleverage activity would be contributions during the accumulation phase. And to a lesser extent, dividend payouts also deleverage the account. If you would like to get more details about the full strategy, I encourage you to read and contribute to this thread: viewtopic.php?f=10&t=143037

We had a lengthy conversation in that thread around drawdowns and their duration. For example, the 2007-2009 bear market lasted for 17 months and had a total drawdown of around 54%. Duration is important as there are deleveraging activities that would prevent a margin call. My strategy takes this into consideration when determining the leverage ratio when the portfolio value is small relative to the regular contributions during the accumulation phase. Shorter-term drawdowns have more potential to break a leveraged strategy in the accumulation phase (due to the higher leverage) than prolonged bear markets. If I remember correctly, the largest 3-month drawdown during that period was around 35%.
comeinvest wrote: Sat Aug 07, 2021 4:43 pm
Rob Bertram wrote: Sat Aug 07, 2021 11:01 am I stayed the course and tax loss harvested (TLH) while I watched the value drop by 80%.
(snip)
I also sold about $45k of employee stock and moved that money into my IB account where I purchased about $200k more e-mini futures. This was pure market timing, but I figured that the market was already down more than 30% and was unlikely to drop another 20%.
Playing risky strategies with part of your assets and adding external reserve accounts when needed is also dishonest; your total leverage based on your total NAV, and the average return on your total assets, is what matters.
I would like to better understand what you feel was dishonest. My portfolio is in the accumulation phase, so cash deposits are part of the strategy.

Is the employee stock part confusing? I had employee stock vest during that period. The traditional Boghelead wisdom is to sell it immediately and invest it according to our investment policy statement. Buying an additional $200k based on $45k (200/45 = 4.4x leverage) was a calculated risk based on my assessment of past market drawdowns. It was absolutely a market timing move.

I agree with you that keeping money earmarked in a side account in order to keep a leveraged portfolio afloat is mental accounting. If that money is earmarked for the leveraged portfolio, it should be considered part of the total value and factors into the true leverage ratio. I believe that I mentioned a strategy where you can try to gain a few extra percentage savings by paying down a mortgage and use a HELOC as a reserve to keep the leveraged account afloat. There are risks to this approach as banks might freeze HELOCs. I don't use that strategy as I like to keep things simple, but some may be more comfortable with it and want the additional savings.
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Re: Interactive Brokers (Best Kept Secret)

Post by comeinvest »

Rob Bertram wrote: Sun Aug 08, 2021 11:30 am I took the liberty of re-organizing the quote so that your statements were attributed to the relevant topic.
comeinvest wrote: Sat Aug 07, 2021 4:43 pm It looks like you don't deleverage when the market goes down. You even add positions. This was pure luck. The market can and has dropped more than 50%. You generated relatively high returns, assuming greatly increased risk, and you were lucky so far.
My leveraged strategy is "buy and hold" forever. So, the primary deleverage activity would be contributions during the accumulation phase. And to a lesser extent, dividend payouts also deleverage the account. If you would like to get more details about the full strategy, I encourage you to read and contribute to this thread: viewtopic.php?f=10&t=143037

We had a lengthy conversation in that thread around drawdowns and their duration. For example, the 2007-2009 bear market lasted for 17 months and had a total drawdown of around 54%. Duration is important as there are deleveraging activities that would prevent a margin call. My strategy takes this into consideration when determining the leverage ratio when the portfolio value is small relative to the regular contributions during the accumulation phase. Shorter-term drawdowns have more potential to break a leveraged strategy in the accumulation phase (due to the higher leverage) than prolonged bear markets. If I remember correctly, the largest 3-month drawdown during that period was around 35%.
comeinvest wrote: Sat Aug 07, 2021 4:43 pm
Rob Bertram wrote: Sat Aug 07, 2021 11:01 am I stayed the course and tax loss harvested (TLH) while I watched the value drop by 80%.
(snip)
I also sold about $45k of employee stock and moved that money into my IB account where I purchased about $200k more e-mini futures. This was pure market timing, but I figured that the market was already down more than 30% and was unlikely to drop another 20%.
Playing risky strategies with part of your assets and adding external reserve accounts when needed is also dishonest; your total leverage based on your total NAV, and the average return on your total assets, is what matters.
I would like to better understand what you feel was dishonest. My portfolio is in the accumulation phase, so cash deposits are part of the strategy.

Is the employee stock part confusing? I had employee stock vest during that period. The traditional Boghelead wisdom is to sell it immediately and invest it according to our investment policy statement. Buying an additional $200k based on $45k (200/45 = 4.4x leverage) was a calculated risk based on my assessment of past market drawdowns. It was absolutely a market timing move.

I agree with you that keeping money earmarked in a side account in order to keep a leveraged portfolio afloat is mental accounting. If that money is earmarked for the leveraged portfolio, it should be considered part of the total value and factors into the true leverage ratio. I believe that I mentioned a strategy where you can try to gain a few extra percentage savings by paying down a mortgage and use a HELOC as a reserve to keep the leveraged account afloat. There are risks to this approach as banks might freeze HELOCs. I don't use that strategy as I like to keep things simple, but some may be more comfortable with it and want the additional savings.
You explained all my questions to my satisfaction. With your "partial only" deleveraging and in particular with your $200k market timing, you were betting on a mean-reversion component of the stock market and on a maximum peak to trough drop, instead of assuming a memory-less stochastic process. I think that worked during most of history except in the 1920ies. For a fully quantitative investment process without emotional or "hope" component, you would have to quantify the probability of the tail risk of getting margin calls, and subsequent forced deleveraging. I know that would be a difficult exercise.

I can't find the discussion about replacing mortgages with margin accounts and HELOCs, but the benefit seems minimal if not negative. The risk premium for the investor in a mortgage is relatively small, I think similar to the cost above the risk-free rate that you would pay on a margin loan, right? So you would basically only benefit from the term premium of the mortgage vs. the short term rates, which was what historically? 0.5%, or was it more? From that you would have to subtract the value of the refinancing optionality component of the mortgage, right? Not sure if the benefit is still positive by then.
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Re: Interactive Brokers (Best Kept Secret)

Post by comeinvest »

LadyGeek wrote: Sat Aug 07, 2021 7:46 pm
comeinvest wrote: Sat Aug 07, 2021 4:43 pm Playing risky strategies with part of your assets and adding external reserve accounts when needed is also dishonest; your total leverage based on your total NAV, and the average return on your total assets, is what matters.
Just to clarify what you said - Changing investment strategies for part of the portfolio, along with adding reserves, is not the correct way to evaluate how your portfolio performs. Is that the intent? I want to be sure that the use of "dishonest" is taken in the right context.
Correct. I referred to the mental accounting. Of course, by no means did I mean to question the integrity of the poster :)
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Re: Interactive Brokers (Best Kept Secret)

Post by Rob Bertram »

comeinvest wrote: Mon Aug 09, 2021 5:33 pm You explained all my questions to my satisfaction. With your "partial only" deleveraging and in particular with your $200k market timing, you were betting on a mean-reversion component of the stock market and on a maximum peak to trough drop, instead of assuming a memory-less stochastic process. I think that worked during most of history except in the 1920ies. For a fully quantitative investment process without emotional or "hope" component, you would have to quantify the probability of the tail risk of getting margin calls, and subsequent forced deleveraging. I know that would be a difficult exercise.
It would take some effort, yes. And I expect that the future will be different from the past, so any insight gained from the exercise might not improve the strategy in a meaningful way.

The future of the market might be drastically different in terms of volatility and returns. Even though I've done excessive backtesting and have been executing my leveraged strategy since 2014, I completely acknowledge that a lucky outcome does not necessarily make the strategy sound.
comeinvest wrote: Mon Aug 09, 2021 5:33 pmI can't find the discussion about replacing mortgages with margin accounts and HELOCs, but the benefit seems minimal if not negative. The risk premium for the investor in a mortgage is relatively small, I think similar to the cost above the risk-free rate that you would pay on a margin loan, right? So you would basically only benefit from the term premium of the mortgage vs. the short term rates, which was what historically? 0.5%, or was it more? From that you would have to subtract the value of the refinancing optionality component of the mortgage, right? Not sure if the benefit is still positive by then.
I will see if I can find the post. You are correct that the supplemental strategy might yield an extra percent or two at best. Here are the basics:
  • Keep enough in your margin account to survive a 30% market drop.
  • Invest the rest in an easily-accessible account that ensures a stable value: a certificate of deposit (CD) or a home mortgage paired with a home equity line of credit (HELOC).
  • If the market drops slightly (3-5%) and in the accumulation phase, direct your monthly deposits back to the margin account as planned until it is back to balance (at the target leverage ratio).
  • If the market drops more or if not in the accumulation phase, sell enough CD assets or exercise the HELOC until the account is back in balance or until all assets have been sold -- whichever is less.
I understand the motivation for that strategy. Best case, you're earning an extra percent or two. When we try to optimize our costs, we look at basis points, so saving 2% is meaningful. Things like mortgages do not last forever, so paying it off early and maintaining a leveraged portfolio might give people a sense of achievement which is not measurable.
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Re: Interactive Brokers (Best Kept Secret)

Post by Dagwood »

hithere wrote: Wed Aug 04, 2021 7:34 am
Dagwood wrote: Fri Jul 09, 2021 5:32 am I have no issue with IBK. That being said, I have no interest in buying individual stocks and I have even less interest in borrowing on margin. Margin investing is, in my humble opinion, inappropriate for the vast majority of retail investors and inappropriate for a BH. When I was growing up, I knew at least one family that lost almost their entire savings by deciding to get involved with margin investing during the market boom of the mid 1980s. Then the correction of 1987 came. A BH investor would have used '87 as a buying opportunity and stayed the course. In the years since, I have seen this again and again, as have all of you, most recently with the COVID pandemic. The diversified buy and hold people did well. In my professional career, I have seen margin lending hurt many people as well. Unless you are running a hedge fund, stay away from margin loans or non-purpose loans. Even the "smart" guys who run hedge funds blow themselves up from time to time, mainly due to leverage and concentration risk.

The whole BH philosophy in large measure hinges on the discipline to save and invest regularly (and thus defer gratification) and to ignore the short term volatility in the market. I always look at this latter point this way: If over a 20 or 30 year period the large indices like the S&P 500, Russell 1000, the Dow, all have little or zero return, is there anywhere you are going to be able to successfully "hide"? Maybe, but the better plan, as compared to stumbling around and incurring tax and transaction costs along the way, is to do what Jack said: stay the course, stay diversified, keep costs low, and invest as regularly as you can.

That's a long way of saying that BDs that make their money on selling the ability to trade frequently at low cost and margin lending are not where I want to be.
Salt makes food much tastier, but can lead to intoxication and death at high enough doses. I believe the old adage that the dose makes the poison is applicable to margin as well. Everyone talks about how they know people who got wiped out because of margin. Well, plenty of people have died of salt poisoning as well - does that mean that we shouldn't consume salt at all? Of course not. Using obscene amounts of margin (and, to an extent, leverage in general) without regard for the risks is a financial suicide. Using a little bit of margin with well-diversified ETFs is okay and provides a good boost in long-term returns.
There is no question you are better off without any salt.

I will summarize my view for the average investor as follows, borrowing from Thoreau:

Simplify, simplify, simplify!

As an aside, I wonder how many folks touting margin here have a professional interest in the product?

The fact that this stuff is showing up here reminds me of the old whole life threads and provides additional anecdotal evidence that we are due for a serious correction.

As Forrest famously said, “that’s all I have to say about that.”
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Re: Interactive Brokers (Best Kept Secret)

Post by tj »

Dagwood wrote: Wed Aug 11, 2021 4:26 am
hithere wrote: Wed Aug 04, 2021 7:34 am
Dagwood wrote: Fri Jul 09, 2021 5:32 am I have no issue with IBK. That being said, I have no interest in buying individual stocks and I have even less interest in borrowing on margin. Margin investing is, in my humble opinion, inappropriate for the vast majority of retail investors and inappropriate for a BH. When I was growing up, I knew at least one family that lost almost their entire savings by deciding to get involved with margin investing during the market boom of the mid 1980s. Then the correction of 1987 came. A BH investor would have used '87 as a buying opportunity and stayed the course. In the years since, I have seen this again and again, as have all of you, most recently with the COVID pandemic. The diversified buy and hold people did well. In my professional career, I have seen margin lending hurt many people as well. Unless you are running a hedge fund, stay away from margin loans or non-purpose loans. Even the "smart" guys who run hedge funds blow themselves up from time to time, mainly due to leverage and concentration risk.

The whole BH philosophy in large measure hinges on the discipline to save and invest regularly (and thus defer gratification) and to ignore the short term volatility in the market. I always look at this latter point this way: If over a 20 or 30 year period the large indices like the S&P 500, Russell 1000, the Dow, all have little or zero return, is there anywhere you are going to be able to successfully "hide"? Maybe, but the better plan, as compared to stumbling around and incurring tax and transaction costs along the way, is to do what Jack said: stay the course, stay diversified, keep costs low, and invest as regularly as you can.

That's a long way of saying that BDs that make their money on selling the ability to trade frequently at low cost and margin lending are not where I want to be.
Salt makes food much tastier, but can lead to intoxication and death at high enough doses. I believe the old adage that the dose makes the poison is applicable to margin as well. Everyone talks about how they know people who got wiped out because of margin. Well, plenty of people have died of salt poisoning as well - does that mean that we shouldn't consume salt at all? Of course not. Using obscene amounts of margin (and, to an extent, leverage in general) without regard for the risks is a financial suicide. Using a little bit of margin with well-diversified ETFs is okay and provides a good boost in long-term returns.
There is no question you are better off without any salt.

I will summarize my view for the average investor as follows, borrowing from Thoreau:

Simplify, simplify, simplify!

As an aside, I wonder how many folks touting margin here have a professional interest in the product?

The fact that this stuff is showing up here reminds me of the old whole life threads and provides additional anecdotal evidence that we are due for a serious correction.

As Forrest famously said, “that’s all I have to say about that.”
How would it help someone professionally?
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Re: Interactive Brokers (Best Kept Secret)

Post by AllomancerJack »

I'm reading IBKR "margin education center" and it seems that even for Reg T margin accounts there are lots of complex rules that is applied on different bases which would be quite hard to track.
How do you guys are tracking state of your levered portfolio?
Is there any "rule of thumb" which I can use to ensure I will never be margin-called? Something like, "keep excessive liquidity no less than N percents of your equities"?
Also one thing that still confuses me is IBKR's "Stock Margin Calculator". For example, for $100k of VOO it shows ~$25k for both initial and maintenance (Reg T) margins. What exactly is this $25k? Is it amount of my own equity that should be kept on top of loan value to avoid margin call?
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Re: Interactive Brokers (Best Kept Secret)

Post by saver007 »

AllomancerJack wrote: Wed Aug 11, 2021 7:01 pm I'm reading IBKR "margin education center" and it seems that even for Reg T margin accounts there are lots of complex rules that is applied on different bases which would be quite hard to track.
How do you guys are tracking state of your levered portfolio?
Is there any "rule of thumb" which I can use to ensure I will never be margin-called? Something like, "keep excessive liquidity no less than N percents of your equities"?
Also one thing that still confuses me is IBKR's "Stock Margin Calculator". For example, for $100k of VOO it shows ~$25k for both initial and maintenance (Reg T) margins. What exactly is this $25k? Is it amount of my own equity that should be kept on top of loan value to avoid margin call?
25K sounds like maintenance margin requirement. Basically Your equity (net liquidation value) need to be above 25k maintenance margin requirement or else you will be in margin deficiency that will lead to liquidations.

IB provides daily margin statements .. It is the best source for detailed margin status. More real time margin data is always displayed in the app.. Realtime Maintenance requirement and Net liquidation value is displayed in home screen of the app all the time so you can see your cushion (NLV - Maintenance Margin )
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Re: Interactive Brokers (Best Kept Secret)

Post by Dagwood »

tj wrote: Wed Aug 11, 2021 9:05 am
Dagwood wrote: Wed Aug 11, 2021 4:26 am
hithere wrote: Wed Aug 04, 2021 7:34 am
Dagwood wrote: Fri Jul 09, 2021 5:32 am I have no issue with IBK. That being said, I have no interest in buying individual stocks and I have even less interest in borrowing on margin. Margin investing is, in my humble opinion, inappropriate for the vast majority of retail investors and inappropriate for a BH. When I was growing up, I knew at least one family that lost almost their entire savings by deciding to get involved with margin investing during the market boom of the mid 1980s. Then the correction of 1987 came. A BH investor would have used '87 as a buying opportunity and stayed the course. In the years since, I have seen this again and again, as have all of you, most recently with the COVID pandemic. The diversified buy and hold people did well. In my professional career, I have seen margin lending hurt many people as well. Unless you are running a hedge fund, stay away from margin loans or non-purpose loans. Even the "smart" guys who run hedge funds blow themselves up from time to time, mainly due to leverage and concentration risk.

The whole BH philosophy in large measure hinges on the discipline to save and invest regularly (and thus defer gratification) and to ignore the short term volatility in the market. I always look at this latter point this way: If over a 20 or 30 year period the large indices like the S&P 500, Russell 1000, the Dow, all have little or zero return, is there anywhere you are going to be able to successfully "hide"? Maybe, but the better plan, as compared to stumbling around and incurring tax and transaction costs along the way, is to do what Jack said: stay the course, stay diversified, keep costs low, and invest as regularly as you can.

That's a long way of saying that BDs that make their money on selling the ability to trade frequently at low cost and margin lending are not where I want to be.
Salt makes food much tastier, but can lead to intoxication and death at high enough doses. I believe the old adage that the dose makes the poison is applicable to margin as well. Everyone talks about how they know people who got wiped out because of margin. Well, plenty of people have died of salt poisoning as well - does that mean that we shouldn't consume salt at all? Of course not. Using obscene amounts of margin (and, to an extent, leverage in general) without regard for the risks is a financial suicide. Using a little bit of margin with well-diversified ETFs is okay and provides a good boost in long-term returns.
There is no question you are better off without any salt.

I will summarize my view for the average investor as follows, borrowing from Thoreau:

Simplify, simplify, simplify!

As an aside, I wonder how many folks touting margin here have a professional interest in the product?

The fact that this stuff is showing up here reminds me of the old whole life threads and provides additional anecdotal evidence that we are due for a serious correction.

As Forrest famously said, “that’s all I have to say about that.”
How would it help someone professionally?
They are a broker and they do better when customers trade more. Leverage facilitates more trading financially. Margin trading is also more synonymous with frequent trading and market timing.

Some of the stuff mentioned here I could understand more when rates were higher. Today? The arguments are harder to make numerically and behaviorally.

Someone find me a post or a link where John Bogle endorsed margin trading for investors. This forum is named after him, after all.

People want to use these products, go ahead. You can do very well. But if you don’t fully understand what you are doing or the potential risks, you can do grave damage to your financial independence. The Boglehead philosophy is based on low cost, consistent, simplified investing. Dollar cost average, stay the course, be smart generally and do nothing when everyone is in a panic. Do those things and over. 30-40 year period you will be fine. Margin, market timing, leverage, are not typically referenced. Good luck in any event. I don’t want to be a negative Nancy, but having read this forum for a long time these posts are surprising.
tj
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Re: Interactive Brokers (Best Kept Secret)

Post by tj »

Dagwood wrote: Thu Aug 12, 2021 3:35 pm
tj wrote: Wed Aug 11, 2021 9:05 am
Dagwood wrote: Wed Aug 11, 2021 4:26 am
hithere wrote: Wed Aug 04, 2021 7:34 am
Dagwood wrote: Fri Jul 09, 2021 5:32 am I have no issue with IBK. That being said, I have no interest in buying individual stocks and I have even less interest in borrowing on margin. Margin investing is, in my humble opinion, inappropriate for the vast majority of retail investors and inappropriate for a BH. When I was growing up, I knew at least one family that lost almost their entire savings by deciding to get involved with margin investing during the market boom of the mid 1980s. Then the correction of 1987 came. A BH investor would have used '87 as a buying opportunity and stayed the course. In the years since, I have seen this again and again, as have all of you, most recently with the COVID pandemic. The diversified buy and hold people did well. In my professional career, I have seen margin lending hurt many people as well. Unless you are running a hedge fund, stay away from margin loans or non-purpose loans. Even the "smart" guys who run hedge funds blow themselves up from time to time, mainly due to leverage and concentration risk.

The whole BH philosophy in large measure hinges on the discipline to save and invest regularly (and thus defer gratification) and to ignore the short term volatility in the market. I always look at this latter point this way: If over a 20 or 30 year period the large indices like the S&P 500, Russell 1000, the Dow, all have little or zero return, is there anywhere you are going to be able to successfully "hide"? Maybe, but the better plan, as compared to stumbling around and incurring tax and transaction costs along the way, is to do what Jack said: stay the course, stay diversified, keep costs low, and invest as regularly as you can.

That's a long way of saying that BDs that make their money on selling the ability to trade frequently at low cost and margin lending are not where I want to be.
Salt makes food much tastier, but can lead to intoxication and death at high enough doses. I believe the old adage that the dose makes the poison is applicable to margin as well. Everyone talks about how they know people who got wiped out because of margin. Well, plenty of people have died of salt poisoning as well - does that mean that we shouldn't consume salt at all? Of course not. Using obscene amounts of margin (and, to an extent, leverage in general) without regard for the risks is a financial suicide. Using a little bit of margin with well-diversified ETFs is okay and provides a good boost in long-term returns.
There is no question you are better off without any salt.

I will summarize my view for the average investor as follows, borrowing from Thoreau:

Simplify, simplify, simplify!

As an aside, I wonder how many folks touting margin here have a professional interest in the product?

The fact that this stuff is showing up here reminds me of the old whole life threads and provides additional anecdotal evidence that we are due for a serious correction.

As Forrest famously said, “that’s all I have to say about that.”
How would it help someone professionally?
They are a broker and they do better when customers trade more. Leverage facilitates more trading financially. Margin trading is also more synonymous with frequent trading and market timing.

Some of the stuff mentioned here I could understand more when rates were higher. Today? The arguments are harder to make numerically and behaviorally.

Someone find me a post or a link where John Bogle endorsed margin trading for investors. This forum is named after him, after all.

People want to use these products, go ahead. You can do very well. But if you don’t fully understand what you are doing or the potential risks, you can do grave damage to your financial independence. The Boglehead philosophy is based on low cost, consistent, simplified investing. Dollar cost average, stay the course, be smart generally and do nothing when everyone is in a panic. Do those things and over. 30-40 year period you will be fine. Margin, market timing, leverage, are not typically referenced. Good luck in any event. I don’t want to be a negative Nancy, but having read this forum for a long time these posts are surprising.
Why would it be better for someone to use margin when interest rates are higher? That means you are paying more to borrow?
User avatar
nyinvestor718
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Re: Interactive Brokers (Best Kept Secret)

Post by nyinvestor718 »

keep it above the 'SMA' requirement.
Judge Learned Hand: "Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury".
hithere
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Re: Interactive Brokers (Best Kept Secret)

Post by hithere »

Dagwood wrote: Wed Aug 11, 2021 4:26 am
hithere wrote: Wed Aug 04, 2021 7:34 am
Dagwood wrote: Fri Jul 09, 2021 5:32 am I have no issue with IBK. That being said, I have no interest in buying individual stocks and I have even less interest in borrowing on margin. Margin investing is, in my humble opinion, inappropriate for the vast majority of retail investors and inappropriate for a BH. When I was growing up, I knew at least one family that lost almost their entire savings by deciding to get involved with margin investing during the market boom of the mid 1980s. Then the correction of 1987 came. A BH investor would have used '87 as a buying opportunity and stayed the course. In the years since, I have seen this again and again, as have all of you, most recently with the COVID pandemic. The diversified buy and hold people did well. In my professional career, I have seen margin lending hurt many people as well. Unless you are running a hedge fund, stay away from margin loans or non-purpose loans. Even the "smart" guys who run hedge funds blow themselves up from time to time, mainly due to leverage and concentration risk.

The whole BH philosophy in large measure hinges on the discipline to save and invest regularly (and thus defer gratification) and to ignore the short term volatility in the market. I always look at this latter point this way: If over a 20 or 30 year period the large indices like the S&P 500, Russell 1000, the Dow, all have little or zero return, is there anywhere you are going to be able to successfully "hide"? Maybe, but the better plan, as compared to stumbling around and incurring tax and transaction costs along the way, is to do what Jack said: stay the course, stay diversified, keep costs low, and invest as regularly as you can.

That's a long way of saying that BDs that make their money on selling the ability to trade frequently at low cost and margin lending are not where I want to be.
Salt makes food much tastier, but can lead to intoxication and death at high enough doses. I believe the old adage that the dose makes the poison is applicable to margin as well. Everyone talks about how they know people who got wiped out because of margin. Well, plenty of people have died of salt poisoning as well - does that mean that we shouldn't consume salt at all? Of course not. Using obscene amounts of margin (and, to an extent, leverage in general) without regard for the risks is a financial suicide. Using a little bit of margin with well-diversified ETFs is okay and provides a good boost in long-term returns.
There is no question you are better off without any salt.

I will summarize my view for the average investor as follows, borrowing from Thoreau:

Simplify, simplify, simplify!

As an aside, I wonder how many folks touting margin here have a professional interest in the product?

The fact that this stuff is showing up here reminds me of the old whole life threads and provides additional anecdotal evidence that we are due for a serious correction.

As Forrest famously said, “that’s all I have to say about that.”
Actually, your body can't function properly without some salt (sodium), which is exactly my point - both too much and too little salt (margin) is sub-optimal.

A modestly leveraged strategy is just as simple as a non-leveraged one, because all I need to do is rebalance the portfolio once a year and buy more shares if needed, which I already do anyway. I don't trade or speculate, I just buy and hold.

I agree that when the market is highly leveraged, that's a symptom of a market bubble. However, I'm not one of those folks who are leveraged to the brim and get wiped out during market crashes. The difference is, I wouldn't have to sell securities to cover my margin loan, even if the market were to drop by 70% tomorrow. In fact, I wouldn't have to do anything, just like if I wasn't leveraged at all.
AllomancerJack
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Re: Interactive Brokers (Best Kept Secret)

Post by AllomancerJack »

hithere wrote: Wed Aug 18, 2021 5:20 pm The difference is, I wouldn't have to sell securities to cover my margin loan, even if the market were to drop by 70% tomorrow.
Does that mean you keep your margin loan value below something like ~15% of your own funds?
Had you considered probability of IBKR increasing margin requirements for some of your assets during market drawdowns?
hithere
Posts: 198
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Re: Interactive Brokers (Best Kept Secret)

Post by hithere »

AllomancerJack wrote: Wed Aug 18, 2021 7:15 pm
hithere wrote: Wed Aug 18, 2021 5:20 pm The difference is, I wouldn't have to sell securities to cover my margin loan, even if the market were to drop by 70% tomorrow.
Does that mean you keep your margin loan value below something like ~15% of your own funds?
Had you considered probability of IBKR increasing margin requirements for some of your assets during market drawdowns?
Yes and yes.

I like the 5 to 10% range, where if one doesn't have access to much liquidity that has low or negative correlation to the stock market, they should aim closer to 5%. I do have such liquidity at my disposal and hence my percentage is about 7%. It may not seem like much at first glance, but in absolute terms it's a good chunk of money, and also in the long run it does make for a pretty nice difference.

Currently, my maintenance margin requirement for broad ETFs, which is what my portfolio comprises of, is 31.25%. At 1.07x leverage, it would take a 90.5% decline for me to get into margin violation. If they were to change the requirement to 75% (2.4 times original requirement), it would still take a 73.8% decline. Mind you, as far as I know, it would be unprecedented for IB to increase the margin requirement for a diversified ETF to 75%. On top of that, as explained, I do have a source of low-correlation liquidity in case the worst scenario happens, which of course is very, very unlikely.
mberon
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Re: Interactive Brokers (Best Kept Secret)

Post by mberon »

Hi,

I'd like to know how the Cash Withdrawal is calculated , I thought that it was Equity with Loan Value - Current Initial Margin, but after looking at that this Cash Withdrawal amount in IB is 11272 €, I don't know how it's calculated.

I attach a screenshot with values of my account, according the formula that I thought that it was, it'd be: Cash Withdrawal = Equity with Loan Value - Current Initial Margin = 129344,79 - 87864,65 = 41480,14 €, but as I say, it's not like that:

Image

Could you help me?.

Thanks.
rchmx1
Posts: 523
Joined: Sat Oct 26, 2019 6:38 pm

Re: Interactive Brokers (Best Kept Secret)

Post by rchmx1 »

mberon wrote: Tue Aug 31, 2021 8:56 pm Hi,

I'd like to know how the Cash Withdrawal is calculated , I thought that it was Equity with Loan Value - Current Initial Margin, but after looking at that this Cash Withdrawal amount in IB is 11272 €, I don't know how it's calculated.

I attach a screenshot with values of my account, according the formula that I thought that it was, it'd be: Cash Withdrawal = Equity with Loan Value - Current Initial Margin = 129344,79 - 87864,65 = 41480,14 €, but as I say, it's not like that:

Image

Could you help me?.

Thanks.
Have you made a deposit within around a week which at least partially brought your "current available funds" up to that 41480?

Also, something you should do is check the "Other Reports," and select "Margin." There you'll find info on the margin requirements of the individual assets you hold, which can impact how much you can withdraw on margin.

Honestly, I just went through this and still don't understand completely how that number is calculated. I was wanting to use a healthy percentage of my margin (a first time intention) to finance a car purchase. I believe that the seeming discrepancy I experienced was due to a misunderstanding I had with how quickly funds deposited via outside bill pay become available for all purposes. While they immediately effect things like what is listed as your excess liquidity, maintenance margin, available funds, excess liquidity, etc, my Cash Withdrawal wasn't updated for a week. 7 calendar days in this instance.

If that doesn't apply to you, I imagine the answer (or at least part of it) will be found in your Margin Report.
comeinvest
Posts: 2709
Joined: Mon Mar 12, 2012 6:57 pm

Re: Interactive Brokers (Best Kept Secret)

Post by comeinvest »

I had a similar question lately that I discussed with customer service. Here was their explanation:
I think not much difference compare to the current available funds, as your current available funds now is *** and your withdrawable funds is ***, on hold is ***, the difference of *** USD can be many reasons, like the interest and dividend receivable (payable) and the FX margin, these elements are being consider when you are trading (using margin), but when calculating the withdrawable funds, they are not considered. so the number will be different.
Hope that helps. And saved a lot of time waiting on hold for some customer service chat.
sc9182
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Re: Interactive Brokers (Best Kept Secret)

Post by sc9182 »

Just searched for word “margin” and found 102 references on this page alone! Figured I post something of import:

If you get right contact, Fidelity, Schwab or ETrade -- currently offer great margin rates with good negotiation:

Fidelity - 1.25%
Schwab - 1.26%

Just say that - was able to negotiate ETrade margin just about: 1% (much better rate than: 1.25%)

Compared/negotiated based on each other brokerages' competitive rates (started comparing with IKBR Pro, and biltmoremarginlending ultra-low margin rates., but settled on ETrade's lowest final offered rate .. not sure we are ready to handle/deal with small brokerages/firms .. so chose ETrade with dedicated account team with direct-line; guess you can’t get these low negotiated margin rates with 50-100k portfolios, got to show’em larger portfolio assets in-line with IKBR-pro — even if we self-manage our account)

The good thing with larger brokerage firms is - you get dedicated contact, (and their premier team, most likely 24x7)., and (I believe) the larger firms are not trigger happy to dissolve portfolio/positions upon close margin call situations, especially at times of market going thru crazy situations like flash-crash etc (if you ever get margin call, or potentially could get a margin call — chances are you are playing with fire!!)

** Not that anyone recommends trading/investing/mortgage-payoff/car-purchase etc based on Margin (ie, paying long term rate with riskier/oft-changing short-term margin rates), besides the pesky margin calls when markets go thru gyrations. But for select few folks these ultra-low negotiated margin rates might come in handy toward short-term needs and in limited-amounts (do address your own portfolio/risk profiles).
rchmx1
Posts: 523
Joined: Sat Oct 26, 2019 6:38 pm

Re: Interactive Brokers (Best Kept Secret)

Post by rchmx1 »

sc9182 wrote: Thu Sep 02, 2021 7:47 am
If you get right contact, Fidelity, Schwab or ETrade -- currently offer great margin rates with good negotiation:

Fidelity - 1.25%
Schwab - 1.26%

Just say that - was able to negotiate ETrade margin just about: 1% (much better rate than: 1.25%)
Well sure, but a key part of that negotiation is $ figure you'd be bringing over. So how much $ did you say you'd be bringing over?
sc9182
Posts: 2179
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Re: Interactive Brokers (Best Kept Secret)

Post by sc9182 »

rchmx1 wrote: Thu Sep 02, 2021 9:39 am
sc9182 wrote: Thu Sep 02, 2021 7:47 am
If you get right contact, Fidelity, Schwab or ETrade -- currently offer great margin rates with good negotiation:

Fidelity - 1.25%
Schwab - 1.26%

Just say that - was able to negotiate ETrade margin just about: 1% (much better rate than: 1.25%)
Well sure, but a key part of that negotiation is $ figure you'd be bringing over. So how much $ did you say you'd be bringing over?
Just say - for ETrade considerably less than IKBR-Pro's bracket for that blended rate (approx IKBR's Tier-II top cut-off range). But, got to add, we've been good with our ETrade Account Rep for about 1-2 years; even sent Kudos/Thank-you letter to his execs. Keep good folks in the network (and do offer great feedback) ..

For Fidelity - 250K; for Schwab - not even a word how much "brokerage amounts" we are bringing-in, still got that rate (again, great-Rep here too)
stay_the_course
Posts: 71
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Re: Interactive Brokers (Best Kept Secret)

Post by stay_the_course »

sc9182 wrote: Thu Sep 02, 2021 7:47 am Just searched for word “margin” and found 102 references on this page alone! Figured I post something of import:

If you get right contact, Fidelity, Schwab or ETrade -- currently offer great margin rates with good negotiation:

Fidelity - 1.25%
Schwab - 1.26%

Just say that - was able to negotiate ETrade margin just about: 1% (much better rate than: 1.25%)

Compared/negotiated based on each other brokerages' competitive rates (started comparing with IKBR Pro, and biltmoremarginlending ultra-low margin rates., but settled on ETrade's lowest final offered rate .. not sure we are ready to handle/deal with small brokerages/firms .. so chose ETrade with dedicated account team with direct-line; guess you can’t get these low negotiated margin rates with 50-100k portfolios, got to show’em larger portfolio assets in-line with IKBR-pro — even if we self-manage our account)

The good thing with larger brokerage firms is - you get dedicated contact, (and their premier team, most likely 24x7)., and (I believe) the larger firms are not trigger happy to dissolve portfolio/positions upon close margin call situations, especially at times of market going thru crazy situations like flash-crash etc (if you ever get margin call, or potentially could get a margin call — chances are you are playing with fire!!)

** Not that anyone recommends trading/investing/mortgage-payoff/car-purchase etc based on Margin (ie, paying long term rate with riskier/oft-changing short-term margin rates), besides the pesky margin calls when markets go thru gyrations. But for select few folks these ultra-low negotiated margin rates might come in handy toward short-term needs and in limited-amounts (do address your own portfolio/risk profiles).
Curious about the ETrade rate, how is it calculated? BM rate + 1%, or something else? Would you feel comfortable sharing via DM the contact of your ETrade rep? I have a significant amount of assets at IBKR (~900k) that I might be interested in moving to ETrade at those rates.
comeinvest
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Re: Interactive Brokers (Best Kept Secret)

Post by comeinvest »

sc9182 wrote: Thu Sep 02, 2021 7:47 am If you get right contact, Fidelity, Schwab or ETrade -- currently offer great margin rates with good negotiation:

Fidelity - 1.25%
Schwab - 1.26%
Do Schwab or ETrade lend out securities in taxable margin accounts that lead to payments in lieu of dividends? If yes, do they reimburse the client for the extra tax cost? (I know Fidelity does or at least did reimburse in the past.)
Makaveli
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Re: Interactive Brokers (Best Kept Secret)

Post by Makaveli »

Contemplating signing up for IB. For round numbers, is it that easy to deposit a million in assets and take out $75k cash at a moments notice?

Looking at buying some lake front property and would prefer to use this method as my down payment vs. selling securities.
rchmx1
Posts: 523
Joined: Sat Oct 26, 2019 6:38 pm

Re: Interactive Brokers (Best Kept Secret)

Post by rchmx1 »

Makaveli wrote: Thu Sep 02, 2021 6:11 pm Contemplating signing up for IB. For round numbers, is it that easy to deposit a million in assets and take out $75k cash at a moments notice?

Looking at buying some lake front property and would prefer to use this method as my down payment vs. selling securities.
Once your account has been set up and your deposit(s) have cleared, withdrawing money on margin couldn't be easier or quicker. You'll just go to the transfer page, click withdraw. The resultant page which list for you the "amount available for withdrawal assuming margin loan" and the "amount available for withdrawal with no margin loan." Then you just enter how much you want to withdraw and confirm your login information. If you complete the withdrawal request before the cutoff, the money will be in your bank account same day. After the cutoff, the money will land next day.
Makaveli
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Re: Interactive Brokers (Best Kept Secret)

Post by Makaveli »

rchmx1 wrote: Thu Sep 02, 2021 7:30 pm
Makaveli wrote: Thu Sep 02, 2021 6:11 pm Contemplating signing up for IB. For round numbers, is it that easy to deposit a million in assets and take out $75k cash at a moments notice?

Looking at buying some lake front property and would prefer to use this method as my down payment vs. selling securities.
Once your account has been set up and your deposit(s) have cleared, withdrawing money on margin couldn't be easier or quicker. You'll just go to the transfer page, click withdraw. The resultant page which list for you the "amount available for withdrawal assuming margin loan" and the "amount available for withdrawal with no margin loan." Then you just enter how much you want to withdraw and confirm your login information. If you complete the withdrawal request before the cutoff, the money will be in your bank account same day. After the cutoff, the money will land next day.
Encouraging customer review, appreciate it.

As someone who’s been debt free for 10+ years I’ve finally come around to the notion that not all debt is bad debt (within reason). Leverage can be wielded as a weapon.
AlohaJoe
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Location: Saigon, Vietnam

Re: Interactive Brokers (Best Kept Secret)

Post by AlohaJoe »

Makaveli wrote: Thu Sep 02, 2021 6:11 pm Contemplating signing up for IB. For round numbers, is it that easy to deposit a million in assets and take out $75k cash at a moments notice?

Looking at buying some lake front property and would prefer to use this method as my down payment vs. selling securities.
This is how I bought my house. I think I withdrew around $200,000 (but it has been a while and I'm increasingly forgetful about small details like that).

The only tricky part is that it can take a few weeks for the account opening + asset transfer + hold period to happen, so best to set it up well in advance of buying the property.

In particular, when you ACATS your positions in (which takes 3-4 days on its own), you can't withdraw cash on margin for (if I recall) 10 business days. My fault for not reading all the fine print but I was lucky the seller ran into delays on their side and I didn't have to explain why I didn't yet have the money I had claimed I did.

Interactive Brokers has also cracked down on transfers to third parties, so if the account you are transfering to didn't match the name on your IBKR account (perhaps one is titled joint with your spouse but the other is titled in just one name), you might run into delays while their compliance department checks things out. Though that only takes a day or so in my experience.
Makaveli
Posts: 975
Joined: Mon May 19, 2014 11:18 pm

Re: Interactive Brokers (Best Kept Secret)

Post by Makaveli »

AlohaJoe wrote: Thu Sep 02, 2021 8:16 pm
Makaveli wrote: Thu Sep 02, 2021 6:11 pm Contemplating signing up for IB. For round numbers, is it that easy to deposit a million in assets and take out $75k cash at a moments notice?

Looking at buying some lake front property and would prefer to use this method as my down payment vs. selling securities.
This is how I bought my house. I think I withdrew around $200,000 (but it has been a while and I'm increasingly forgetful about small details like that).

The only tricky part is that it can take a few weeks for the account opening + asset transfer + hold period to happen, so best to set it up well in advance of buying the property.

In particular, when you ACATS your positions in (which takes 3-4 days on its own), you can't withdraw cash on margin for (if I recall) 10 business days. My fault for not reading all the fine print but I was lucky the seller ran into delays on their side and I didn't have to explain why I didn't yet have the money I had claimed I did.

Interactive Brokers has also cracked down on transfers to third parties, so if the account you are transfering to didn't match the name on your IBKR account (perhaps one is titled joint with your spouse but the other is titled in just one name), you might run into delays while their compliance department checks things out. Though that only takes a day or so in my experience.
Even if it’s not used, why wouldn’t anyone with a large taxable account not want access to this? Would the only reason be a lack of self control?
rchmx1
Posts: 523
Joined: Sat Oct 26, 2019 6:38 pm

Re: Interactive Brokers (Best Kept Secret)

Post by rchmx1 »

Makaveli wrote: Thu Sep 02, 2021 8:46 pm Even if it’s not used, why wouldn’t anyone with a large taxable account not want access to this? Would the only reason be a lack of self control?
Until you really engage with the idea of this option, I think a lot of it comes down to what you wrote in your previous post. So many people only think of debt as high interest credit card balances, high interest loans, large student loan debt, etc. It takes most people a long time of living to learn that there is another type of debt beyond those almost predatory types. A type of debt that can be incredibly useful and is easily managed once you really know how to manage your finances and your life in general. So, I think it's more of a blind spot than anything else. Then again, there is a certain ascetic pleasure in living a "only pay cash" type of life. You're just leaving real money on the table by confining yourself in that way.
rchmx1
Posts: 523
Joined: Sat Oct 26, 2019 6:38 pm

Re: Interactive Brokers (Best Kept Secret)

Post by rchmx1 »

Makaveli wrote: Thu Sep 02, 2021 8:05 pm Encouraging customer review, appreciate it.

As someone who’s been debt free for 10+ years I’ve finally come around to the notion that not all debt is bad debt (within reason). Leverage can be wielded as a weapon.
Happy to share my experience. And I couldn't agree more, felt exactly the same re debt. But last year I moved my taxable account to IBKR in order to take advantage of their very compelling forex services (being an expat, the move saves me hundreds of dollars a year vs more typical foreign currency transfer options), and starting learning about the benefits of margin loans.

During lockdown I decided I wanted to buy a vehicle to get back to taking road trips with a newly adopted dog, and instead of plugging the savings for that purchase into a bank account, or plugging it into securities but they creating a taxable event when it came time to sell to fund the purchase, I just bulked up the taxable holdings with new money to create a cushion, and recently used a margin loan to complete the purchase.

It's small potatoes in the scheme of things, but pretty magical for me. Living in central Mexico, a country where things like home loans, car loans don't really exist, but where the loans which are offered come with 15-20%+ interest rates and ridiculous hoops to jump though, where credit card interest rates are typically 50%+. And yet I was able to continue to invest all my savings in the market and get a 1.6% interest loan without any hoops to jump through to complete the car purchase. Pretty cool! And if I do ever decide to purchase property down here, I'd take advantage of the same option.
calwatch
Posts: 1447
Joined: Wed Oct 02, 2013 1:48 am

Re: Interactive Brokers (Best Kept Secret)

Post by calwatch »

It is very easy to speculate using IBKR and I try to keep the speculation account away from my investing accounts. You can create separate sub accounts but previously, under IBKR Pro, you had to pay $10 times the number of sub accounts minimum commission.

Since July, they dropped their minimum commissions, but I have access to a HELOC at a very low interest rate if I need money; and I find it more useful to just shift my investing account around brokers to take advantage of different promotions.
saver007
Posts: 236
Joined: Fri Nov 07, 2014 8:18 pm

Re: Interactive Brokers (Best Kept Secret)

Post by saver007 »

sc9182 wrote: Thu Sep 02, 2021 7:47 am Just searched for word “margin” and found 102 references on this page alone! Figured I post something of import:

If you get right contact, Fidelity, Schwab or ETrade -- currently offer great margin rates with good negotiation:

Fidelity - 1.25%
Schwab - 1.26%

Just say that - was able to negotiate ETrade margin just about: 1% (much better rate than: 1.25%)

Compared/negotiated based on each other brokerages' competitive rates (started comparing with IKBR Pro, and biltmoremarginlending ultra-low margin rates., but settled on ETrade's lowest final offered rate .. not sure we are ready to handle/deal with small brokerages/firms .. so chose ETrade with dedicated account team with direct-line; guess you can’t get these low negotiated margin rates with 50-100k portfolios, got to show’em larger portfolio assets in-line with IKBR-pro — even if we self-manage our account)

The good thing with larger brokerage firms is - you get dedicated contact, (and their premier team, most likely 24x7)., and (I believe) the larger firms are not trigger happy to dissolve portfolio/positions upon close margin call situations, especially at times of market going thru crazy situations like flash-crash etc (if you ever get margin call, or potentially could get a margin call — chances are you are playing with fire!!)

** Not that anyone recommends trading/investing/mortgage-payoff/car-purchase etc based on Margin (ie, paying long term rate with riskier/oft-changing short-term margin rates), besides the pesky margin calls when markets go thru gyrations. But for select few folks these ultra-low negotiated margin rates might come in handy toward short-term needs and in limited-amounts (do address your own portfolio/risk profiles).
If IB account is opened via referral link from www.stockbrokers.com , you get 50 basis point discount on the margin Rate. So rate start at1.08% instead of 1.58% without any negotiation and goes down from there if you take lot of margin.
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