Apparently we have a "market timer" on these forums, and based on previous posts (mentioning wife and kid), it sounds very likely it's the same person (or a large coincidence).
Sending him a PM linking to this thread. Given how transparent/honest he was over at BH, I'd bet he'll chime in if it is him.
Yeah, that's me.
Leverage is a popular discussion topic around all-time stock market highs. I see some parallels between 2007 and today, and am not optimistic about future returns (given my poor timing, perhaps you could consider this as a contrary indicator).
For the record, I agree with the logic of Ayres and Nalebuff in their Lifecycle Investing book. One should try to smooth risk across time, which, under some reasonable assumptions, means using leverage when young, poor, and with a lifetime of earnings ahead of you. The example they use to open the book is a 3rd year Yale Law student, biglaw offer in hand, with $5K to invest. I see no problem with that person using 2x leverage to buy $10K of stocks. I also agree with Ayres and Nalebuff that my implementation was foolhardy, due to my concentration in bank stocks and using proceeds from credit card balance transfer promotions to invest. Mostly, though, I just had horrible timing. My life could have easily been ruined if not for a few lucky breaks. Unlike the Yale Law student, I started my leverage experiment and went heavily into debt before even having a job offer in hand.
While Ayres and Nalebuff confine their analysis to stocks, I believe one could improve on their recommendation by including other asset classes, particularly long term bonds. There is a recent Bogleheads thread on leveraging a balanced fund, which is closer to how I'd recommend using leverage today:
https://bogleheads.org/forum/viewtopic.php?f=10&t=143037As forummm notes above (reply #50), the lifecycle investing profile of a MMM-style FIRE investor is very different from what Ayres and Nalebuff had in mind. If your goal is to work 5-10 years and retire, using leverage in your early years in less important. A much more challenging problem is surviving for 50+ years on investment returns. For someone planning a typical career lasting 30-40 years, early leverage (offset by less risk later in life) can substantially improve risk and return over the entire lifecycle.
There are various ways to implement this strategy: options, futures, leveraged ETFs, etc. Currently, due to technical reasons involving optimal early exercise and low interest rates, I'd recommend avoiding LEAPS. Futures are my preferred investment vehicle, as they are extremely liquid and allow one to borrow essentially at the risk-free rate. However, they are large in size: one S&P eMini currently has exposure equivalent to 500 SPDRs, or $100K+. Leveraged ETFs are commonly disparaged due to volatility drag; however, with regular rebalancing, this is actually not a problem. More importantly, any leveraged strategy involves scenarios where low prices will force you to sell, and high prices compel you to buy. You can reset your exposure on a daily basis (like a leveraged ETF), a monthly basis (as recommended by Ayres and Nalebuff), or when your RegT is binding and your broker issues a margin call (as I did). If you choose to adopt this strategy, have contingency plans in place ahead of time and follow your plan. You don't want to be a deer in headlights, making decisions lacking sleep in the middle of night, as I was. One of the key lessons I learned is that bad decisions tend to beget more bad decisions. Try to make decisions with a sound mind.