1) What country do you live in that has a 50% tax on short term capital gains? In the US they max out at 37%, and even that is only for earnings after $523,601 for single filers.
2) Are options a possibility? If your margin rates are low enough, there are options trades that could lock your outcome into a narrow range of possibilities, reducing risk. E.g. a "collar" strategy or "protective put". This could make the risk more tolerable.
3) Are you 2-4y from retirement and 130% allocated to stocks? Most advice is to go 80-90% at most, because of the risk of a tragic blowup that close to the finish line that requires several years to recover from and sets back your retirement by nearly a decade. See the years 2000-2002 and do the math on what would happen at 30% margin.
1) Counting California state tax of 12%
2) This is a good idea, will research more. I was thinking of selling covered calls too
3) I am 41 and I want to grow my assets quickly to be able to retire as soon as I can. That's why the 130% allocation. I am at 1.8m now and want to quickly reach 3m+ so that I can say bye bye to work (and still be able to support kids and wife). But I don't know if I am thinking this correctly. Should I be more conservative at this number?
Re #3, I can't bust your chops because I'm leveraged too, just on a longer term hypothesis and use derivatives instead of index funds. We do to some extent get paid more to watch the lines squiggle more, but more leverage/risk does not always lead to higher returns and faster FIRE numbers. It may be more accurate to think of a leveraged portfolio as exacerbating whatever it going to happen in the short term. If the market is up a little next month, you win big. If the market is down a little next month, you lose big.
The most extreme example - way beyond a 130% stock portfolio, risk-wise - would be a weekly options spread. You could trade a spread (buy an option at one strike, sell an option at another strike) to essentially place a bet that stocks will be either higher or lower next week. Such a bet, with option strike prices on each side of the current price, generally has a 50% probability of success, and therefore a will most often yield a double-or-nothing 100% or 0% payout.
You could put your entire pot into one of these bets, and the outcome would either be retired next week or broke next week. This is the way to retire ASAP - potentially done by next week! As an alternative to these 50/50 odds, you could hold a diversified portfolio for 5 years and generate the same outcome as you would by winning the spread trade, it's just that it took 5 years instead of a week and your odds of success are massively higher while your odds of disaster are massively lower. If you lost everything on the options bet, it might take you 10 years to recover.
Thus in terms of time - the only non-renewable resource, and our real currency - the higher-risk path will either save you years or cost you years, with very low certainty. The lower-risk path will cost you a moderate amount of time, with high certainty.
We've algebraically reduced it to a tradeoff between time and certainty. To retire in less time means to pursue a path that has less certainty of success, and a risk of adding years to one's career. This is what is meant when people say that day-to-day changes in the stock market are random, but long-term returns follow a pattern: Certainty increases with the amount of time invested.
This is the correct way to think about it, I think. It doesn't tell you what to do, but makes the tradeoff between time and certainty explicit. Personally, if I had $1.8M I'd retire to a life of luxury in a LCOL area and not have to gamble anything for the privilege of living in CA and paying 12% taxes. That bet pays out as fast as I can load the Uhaul.
