Author Topic: Leveraged portfolio with a high bond-to-stock ratio  (Read 2267 times)

ukusmustache

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Leveraged portfolio with a high bond-to-stock ratio
« on: October 26, 2019, 02:01:31 PM »
I would really like to hear about the opinions of the MMM community on this strategy. (If this has already been discussed on the MMM forums, I would be grateful if someone could link to the thread(s)!)

The idea (which is discussed at length here: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=272007) is to take two major asset classes - stocks and bonds - and to combine them in some ratio which maximizes the Sharpe ratio (which attempts to capture the risk to reward ratio), and then leverage the whole portfolio. The point is that since stocks and bonds are somewhat uncorrelated (maybe even anti-correlated), having a portfolio with both will be more diversified and less risky. Historically, it seems that having a portfolio which is mainly bonds (70 or 80%) and a small amount of stocks gives the best Sharpe ratio. But the returns are small because bonds have such small returns - however you can ramp up both the expected returns and the risk by leveraging the whole portfolio. Also, since using bonds as collateral gives access to cheap borrowing, the cost of borrowing does not cut into the yield very much. The net result seems to be a portfolio with significantly lower expected risk and significantly higher expected returns.

I am thinking of switching (from essentially 100% stocks) to this strategy for long term investing. It seems much better in back tests, with much higher returns and much lower maximum portfolio value drops. I would love to hear peoples' thoughts on it!

BicycleB

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Re: Leveraged portfolio with a high bond-to-stock ratio
« Reply #1 on: October 26, 2019, 02:13:05 PM »
Speaking for myself (I don't presume to represent the community), back tests are notorious for false positives - strategies that worked great then (if we had only seen them coming) but not in the future. Leverage would increase the error in such a case, as would focusing on just one or two asset classes instead of a more diversified portfolio.

One thread in which several relevant elements are discussed is:
https://forum.mrmoneymustache.com/investor-alley/portfolio-design-idiots-v-gurus/

Includes mention of back testing's difficulty (briefly), the merits of diversification, historical analysis of multiple portfolio strategies, the possible difference between what worked in the past and what will work in the future, a surprising technique for portfolio design, and even a specific strategy ("Larry Portfolio") somewhat similar to the path you're considering.
« Last Edit: October 26, 2019, 02:16:21 PM by BicycleB »

BicycleB

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Re: Leveraged portfolio with a high bond-to-stock ratio
« Reply #2 on: October 26, 2019, 02:15:25 PM »
Speaking for myself (can't represent the community per se!), back tests are notorious for false positives - strategies that worked great then (if we had only seen them coming) but not in the future. Leverage would increase the error in such a case, as would focusing on just one or two asset classes instead of a more diversified portfolio.

One thread in which several relevant elements are discussed is:
https://forum.mrmoneymustache.com/investor-alley/portfolio-design-idiots-v-gurus/

Includes mention of back testing's difficulty (briefly), the merits of diversification, historical analysis of multiple portfolio strategies, the possible difference between what worked in the past and what will work in the future, a surprising technique for portfolio design, and even a specific strategy ("Larry Portfolio") somewhat similar to the path you're considering.
« Last Edit: October 26, 2019, 02:16:58 PM by BicycleB »

ukusmustache

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Re: Leveraged portfolio with a high bond-to-stock ratio
« Reply #3 on: October 26, 2019, 04:44:36 PM »
I agree with you that back testing as the main justification of an investment strategy is a bad idea, but this is not a back-test inspired approach. Much like index investing, this is a theoretically justified approach based on some basic assumptions (almost uncorrelated assets and an almost efficient market). The fact that it does well in back tests should be seen as additional evidence in its favor I think.

Systems101

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Re: Leveraged portfolio with a high bond-to-stock ratio
« Reply #4 on: October 26, 2019, 06:19:45 PM »
Much like index investing, this is a theoretically justified approach based on some basic assumptions (almost uncorrelated assets and an almost efficient market). The fact that it does well in back tests should be seen as additional evidence in its favor I think.

The back-testing graphs and OP posts near it are very telling.  I disagree that this is "like index investing".  This is a very active bet on interest rates.

Index investing is based on a logic and math:
Let M be the total market of stocks
Let P be the proportion of the stock market held by passive investors
Let A be the stocks held by active investors.
The market is composed of passive and active investors.
M = PM + A
By definition, A = (1-P)M, so in the aggregate, active investors own the exact same ratio of stocks as passive investors.

Paying lower fees is better, so in the aggregate passive investors will be better off.

A corollary is that active investors can only get ahead by taking from other active investors. In order to get ahead of passive investors, they have to consistently over-perform the market by more than the fees.  Empirical evidence shows this (consistent over-performance) is extremely rare.

You are making an assumption of low correlation between stocks and bonds.  However, I'm not sure that's a good assumption.  Specifically from that article: "Stock-bond yield correlations have been largely positive since the late 1990s, rose strongly during the global financial crisis...", which means right when someone wanted it most, the correlation did the worst possible thing it could.

In reality, what this suggests is much more along the lines of what Long Term Capital Management did.  They had "a theoretical model of what the relationships between different but closely related fixed income securities should be" (quoting the Wikipedia article), but it got worse (bankrupting them due to leverage) before it returned to their expected trend.

What's worse, is that the process clearly produces horrible results in rising interest rate environments.  The OP of that thread admits it right after the grand backtest. If this really is just a major bet on interest rates, why not bet more directly (and likely for less fees)? [which really is: if you can really predict interest rates, why are you posting here and not rich and retired?]


vand

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Re: Leveraged portfolio with a high bond-to-stock ratio
« Reply #5 on: October 27, 2019, 04:04:55 AM »
I would be very careful.

What appears to make sense on paper does not always translate into a portfolio that lets you sleep easily at night.

The Bond/Stock correlation has changed over time, and it may will change again as we move forward. Besides, at the depts of the GFC when you needed one to offset the other they both got drubbed.

https://www.marketwatch.com/story/bank-of-america-declares-the-end-of-the-60-40-standard-portfolio-2019-10-15?mod=MW_story_top_stories



IMO there is a place for using a conservative level of leverage in investing (as opposed to speculating/trading), but only with an active framework, never within a passive one.
« Last Edit: October 27, 2019, 04:11:40 AM by vand »

Indexer

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Re: Leveraged portfolio with a high bond-to-stock ratio
« Reply #6 on: October 27, 2019, 11:13:24 AM »
In your post you don't mention leveraged ETFs, just using leverage, but the topic you quoted is talking about using X3 leveraged ETFs. Is this your intention as well?

If you look at the second graph in that post you might notice something interesting. The graph is titled, Portfolio Analysis Returns (Jan 1987- Dec 2018). Look at the blue line, which is the backtest for this strategy. Over the long term it outperforms the SP500 by a lot, but most of that alpha is generated in the last 10 years of a 31 year test. I don't think anyone would brag about the first 10 years.

In 1987-1989 there is one spot where the portfolio is down significantly, and at the same time the SP500 was basically flat compared to it's starting point. The recommended portfolio underperforms the SP 500 from 1987 to 1993, it starts overcoming the SP500 in 1994, but they are about even again by 1995. Even by 98 it's barely outperforming the SP, not enough performance to say whether the strategy is working or just lucky. 

How confident are you in this strategy?  Confident enough to stick with it if it underperforms for almost a decade? Do we have any reason to expect this strategy will perform like it did from 2009-2019 as opposed to 1987-1997? Which period is the exception and which is the rule? That's the problem with a lot of backtests. There was 1 period where they did amazingly well which makes the whole test look great, but that period is unlikely to repeat itself.

Many backtests I've seen over the years include long term government bonds, and this one appears to as well. At the start of this backtest 10 year treasury bonds were yielding over 7%. Now they are yielding 1.77%. So a large chunk of this portfolio was earning 7% income, and the bonds benefited from price appreciation as rates fell. Given rates today, it would be nearly impossible for long term bonds to earn the same return over the next 30 years.

marty998

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Re: Leveraged portfolio with a high bond-to-stock ratio
« Reply #7 on: October 28, 2019, 01:07:22 AM »
I also LOLled at the stocks / bonds low correlation.

Stocks go to zero when companies go bust. Companies go bust when they can't pay back their bonds.

Stands to reason that there is going to be some correlation in bad times....

SwordGuy

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Re: Leveraged portfolio with a high bond-to-stock ratio
« Reply #8 on: October 28, 2019, 06:44:40 AM »
Anyone who wants to go big on leverage this deep into a boom cycle is someone who wants to be broke.


ChpBstrd

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Re: Leveraged portfolio with a high bond-to-stock ratio
« Reply #9 on: October 28, 2019, 08:53:06 AM »
Leverage should worsen a correctly calculated Sharpe ratio. That is, a leveraged portfolio is always more risky than an unleveraged one.

Theoretically, one would be buying equity and debt in a portfolio of mostly leveraged companies, and using leverage to do so. If one has any personal debt or a mortgage, then it could be said that one borrowed in order to make the “down payment” on another loan that was used to buy a portfolio of debt and equity issued by leveraged companies. That’s 3 layers of debt when most people are only thinking about their margin loan! One could even explore a 4th level by examining the indebtedness of the companies’ customers. No wonder we have economic cycles!

Leverage magnifies both gains and losses, and margins/loans often cannot be maintained or rolled during economic downturns when you need them most, so using leverage is a bold bet on a continued bull market. If that exact scenario doesn’t play out, you probably lose as you are forced to sell low. While an unleveraged investor experiences bear markets as a setback, it’s often more like “game over” for leveraged investors.

The easiest and possibly even cheapest way to obtain leverage would be to buy leveraged closed-ended funds. Yes, these have fees between 1-3% but consider these fees in comparison with the interest rate you would pay by personally borrowing, and the many hours you’d spend arranging such loans. The spread between a personal bank loan or margin interest rate and the interest rate on, say, a portfolio of muni bonds is likely to be nonexistent, but a large financial institution can borrow more cheaply because their credit is better than yours. Also consider that such funds often sell at a discount to NAV and the fees make more sense (that’s efficient markets for ya). Go to cefconnect.com to learn more.

CEFs are not for me though. I’m using a long-duration collar options strategy to reduce risk on my very-equities-heavy portfolio. I’ve found it to be the cheapest and most direct way to de-risk a risky portfolio and guard against a 2000 or 2008 style setback. I don’t have to guess about the future correlations between various assets; my range of possible outcomes is pre-determined and guaranteed no matter how bad the SHTF.

Likewise, if one wanted to play some offense and place a bold bet on a continued bull market, one could just buy some long-duration call options. One could get about 10:1 leverage and a risk profile limited to the amount spent (I.e. 100%). A small portfolio allocation (2-4% seems reasonable) could therefore control many shares of, say, SPY, and with a risk profile that would not end your retirement hopes if things don’t work out as planned.

Also, could someone dig up the “mortgage your retirement” Bogleheads link?”

ukusmustache

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Re: Leveraged portfolio with a high bond-to-stock ratio
« Reply #10 on: October 29, 2019, 01:55:34 PM »
Thanks everyone for your comments so far! There are a few things I would like to address here.

The first is something which has come up in many responses - it is the idea assumption of uncorrelated assets. I probably wasn't clear here - I didn't mean that I actually think this assumption is true, or even that the strategy is only valid if it holds. I just meant that (like total stock market index funds) there is a simple mathematical model in which the strategy is optimal - the model in which the assets are uncorrelated. Having a strategy that is justified mathematically is important to me because it seems better than simply finding a model through empirical back testing.

In order for combining both stocks and bonds together to reduce risk, they don't have to be uncorrelated, or anti-correlated. They just need to be not completely correlated! I think they are not completely correlated, and I am sure most of you do too.

So probably we all agree that combining stocks and bonds together can reduce the risk. The question is - how does this affect the yield? Let me use a little math here. The point is that if you have two assets (lets say total stock market and total bond market), with mean return r1 and r2 and standard deviations s1 and s2, and you put a fraction f in the first asset, and (1-f) into the second asset, then the overall mean return is
r = f*r1 + (1-f)*r2
whereas the total standard deviation is NOT f*s1 + (1-f)*s2. If the two assets are not completely correlated, then
s < f*s1 + (1-f)*s2
so you can improve the ratio by combining both together, which is no surprise since lots of people combine stocks and bonds.

Now comes the issue of leveraging. Suppose you could borrow at a very low interest rate - at the rate of inflation. Then I would argue that if your risk tolerance was such that you are happy with the risk of the 100% stock portfolio, you should be just as happy with a mixed stock-bond portfolio along with enough leveraging to make the standard deviation of combined portfolio equal to that of the pure stock one. (But note that the mean of the combined portfolio will be higher than the pure stock portfolio).

The catch of course is that you can't typically borrow at such a low rate, and therefore your expected return will be eaten into by the fact you are servicing the interest on the loans (which is what ChpBstrd was probably getting at when saying the Sharpe ratio will be worse with leverage - which I agree with). When calculating the fraction of stock versus bond, Something to point out is that the back tests which were performed, the cost of borrowing was included.

It was pointed out that time periods could be cherry picked in which this strategy does very well, and others in whcih it does less well. This is hard to disagree with. I would say though that my time frame is very long (as are most peoples on MMM - probalby 30 years is reasonable) and I don't think there are long time frames over which this does worse than 100% stock, but there are long time periods over which it does much better. There also are not extremely long time frames to look at in the study! I would be curious if there is much older bond market data which can be used.

I look forward to further counterpoints to these arguments!

SwordGuy

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Re: Leveraged portfolio with a high bond-to-stock ratio
« Reply #11 on: October 29, 2019, 02:25:47 PM »
It partly depends on the source/type of the loan and your ability to repay that loan in adverse financial circumstances.

For example, if it would cost you $24k a year to service the loan and you could easily handle that even with asset prices cut back, and your job(s) were pretty darn secure, then leveraging that loan into stock purchases might be a great idea.

But if you are using margin calls, where the broker is lending you the money and you'll have to immediately pony up the cash if the stock value drops below a certain amount, you're on a fast path to becoming broke.

Indexer

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Re: Leveraged portfolio with a high bond-to-stock ratio
« Reply #12 on: October 29, 2019, 03:57:10 PM »
Quote from: ukusmustache
In order for combining both stocks and bonds together to reduce risk, they don't have to be uncorrelated, or anti-correlated. They just need to be not completely correlated! I think they are not completely correlated, and I am sure most of you do too.

All true when we are talking about traditional portfolio construction. You can use the ratio of stocks and bonds to control the risk/return profile of a portfolio. This can all fall apart when you add leverage. Leverage causes things to move much faster, for better or worse. If both assets go down at the same time multiplied by leverage it can cause problems quickly.

Quote
It was pointed out that time periods could be cherry picked in which this strategy does very well, and others in whcih it does less well. This is hard to disagree with. I would say though that my time frame is very long (as are most peoples on MMM - probalby 30 years is reasonable) and I don't think there are long time frames over which this does worse than 100% stock, but there are long time periods over which it does much better. There also are not extremely long time frames to look at in the study! I would be curious if there is much older bond market data which can be used.


In the linked Bogelheads topic they provide a link to a post where they do a longer backtest. Here is a link: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=272007&start=1050#p4426381

They take the backtest all the way back to 1955. There is a 26 year period in that test, 55-81, worth looking at. Starting at $100,000 in 1955, by 1981 the backtest portfolio is only worth $101,649 VS the S&P 500 being $920,716.  Ouch!
« Last Edit: October 29, 2019, 04:04:16 PM by Indexer »

nancyfrank232

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Leveraged portfolio with a high bond-to-stock ratio
« Reply #13 on: October 29, 2019, 04:05:00 PM »
Personally I would be worried about the current bond bubble with OP’s strategy

BicycleB

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Re: Leveraged portfolio with a high bond-to-stock ratio
« Reply #14 on: October 29, 2019, 04:24:24 PM »
@ukusmustache, your math is accurately derived, but from assumptions that may be inaccurate...which could be a fatal flaw.

You use statistics such as standard deviation that work wonderfully for a typical Bell curve distribution. But stock prices don't follow the typical Bell curve. Nassim Taleb has basically built a career on recognizing and in some cases explaining this. Here's a book review that discusses a bit of the topic.

http://mastersinvest.com/newblog/2018/2/18/learning-from-benoit-mandelbrot

ukusmustache

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Re: Leveraged portfolio with a high bond-to-stock ratio
« Reply #15 on: October 29, 2019, 04:42:16 PM »

In the linked Bogelheads topic they provide a link to a post where they do a longer backtest. Here is a link: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=272007&start=1050#p4426381

They take the backtest all the way back to 1955. There is a 26 year period in that test, 55-81, worth looking at. Starting at $100,000 in 1955, by 1981 the backtest portfolio is only worth $101,649 VS the S&P 500 being $920,716.  Ouch!

Uh oh. This may just be enough for me to be put off. Thanks for pointing that out!!

nancyfrank232

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Re: Leveraged portfolio with a high bond-to-stock ratio
« Reply #16 on: October 29, 2019, 04:49:27 PM »

In the linked Bogelheads topic they provide a link to a post where they do a longer backtest. Here is a link: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=272007&start=1050#p4426381

They take the backtest all the way back to 1955. There is a 26 year period in that test, 55-81, worth looking at. Starting at $100,000 in 1955, by 1981 the backtest portfolio is only worth $101,649 VS the S&P 500 being $920,716.  Ouch!

Uh oh. This may just be enough for me to be put off. Thanks for pointing that out!!

We’ve been in a bond bull market bubble for awhile

Xlar

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Re: Leveraged portfolio with a high bond-to-stock ratio
« Reply #17 on: October 29, 2019, 05:21:31 PM »
[snip]
If you look at the second graph in that post you might notice something interesting. The graph is titled, Portfolio Analysis Returns (Jan 1987- Dec 2018). Look at the blue line, which is the backtest for this strategy. Over the long term it outperforms the SP500 by a lot, but most of that alpha is generated in the last 10 years of a 31 year test. I don't think anyone would brag about the first 10 years.

In 1987-1989 there is one spot where the portfolio is down significantly, and at the same time the SP500 was basically flat compared to it's starting point. The recommended portfolio underperforms the SP 500 from 1987 to 1993, it starts overcoming the SP500 in 1994, but they are about even again by 1995. Even by 98 it's barely outperforming the SP, not enough performance to say whether the strategy is working or just lucky. 
[snip]

I am curious about this graph as well. While the portfolio does well over the full 30 years for this specific date range it does go negative in the first few years. Would this be enough to have a margin call on your leverage? If it's not, how much of a drop would be needed?

ChpBstrd

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Re: Leveraged portfolio with a high bond-to-stock ratio
« Reply #18 on: October 30, 2019, 10:34:11 AM »
Let’s say p1 is an unleveraged portfolio and p2 is leveraged 50%. Pick any allocation. P1 consists of $1M assets and $0 debt, and p2 consists of $1.5M in assets and $0.5M in debt.

If the return on the assets is 10%, p1 will gain $100k and p2 will gain $150k minus interest.
If the return on assets is -10%, p1 will lose $100k and p2 will lose $150k and also lose the interest.

So in terms of ROI, p2 will always underperform p1 due to the cost of interest. It is both more volatile and has a lower expected ROI, which is what I mean about the Sharpe ratio if properly calculated (SD in the denominator multiplied by leverage, expected return reduced by interest). In terms of absolute gains, p2 wins when the return compensates for more than the interest.

So there’s an element of market timing in selecting timeframes during which returns will exceed the interest paid.

There’s also an element of credit arbitrage in which your lender charges you for the risk that you go broke, and then you find a borrower (or bond fund) even less creditworthy than yourself to lend to, charging them based on the higher risk that they go broke. In doing so, you not only pocket the interest rate spread, you also take on a slice of risk that does not appear on your brokerage statement or balance sheet - the spread between your risk and your borrower’s risk. E.g. if you with a credit score of 700 lend your life savings to someone with a credit score of 500, you might as well consider your credit score to be 500, because if they go broke so do you. You might be able to borrow at, say, 5% with your 700 credit score and then loan the money to “Vinnie” with a 500 credit score at 8%, but that 3% spread does not come for free - it is your compensation for the risk “Vinnie” defaults. Was value created in this transaction? Depends on the sequence of returns. Does Vinnie default or doesn’t he?

Which brings us to the most important point. The things that kill retirement portfolios are sequence of returns risk and the tendency of investors to sell low during bear markets. Leverage would worsen SORR risk by enlarging the losses experienced during a series of down years and because interest costs would lower ROI in any event. Also, continuation of the strategy requires rolling the old loans into new loans at some point, or preventing margin calls. The times when loan rollover will not be possible will tend to be in the depths of bear markets or panics, so in 2008 p2 might have been forced to liquidate far more than a third of its assets due to a lack of ability to borrow. Thus leverage brings the worst of SORR while also forcing sales at the bottom even for disciplined investors who don’t want to.

BicycleB

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Re: Leveraged portfolio with a high bond-to-stock ratio
« Reply #19 on: October 30, 2019, 11:16:25 AM »
^Strongly agree with the last post, except for a quibble about terms. I think that instead of ROI (Return on Investment), it should say ROC (Return on Capital).

http://pvcalc.org/ROI-ROC-leverage-graph

Xlar

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Re: Leveraged portfolio with a high bond-to-stock ratio
« Reply #20 on: October 30, 2019, 11:28:01 AM »
^Strongly agree with the last post, except for a quibble about terms. I think that instead of ROI (Return on Investment), it should say ROC (Return on Capital).

http://pvcalc.org/ROI-ROC-leverage-graph

Can you explain the graph that is shown in your link?
What is kWh/kWp?
When they say the legend is the leverage what do they mean? It says that 10% leverage is 10% borrowed and 90% capital but the legend lists 100% as an option. How does that work? Your portfolio consists of just borrowed $?

BicycleB

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Re: Leveraged portfolio with a high bond-to-stock ratio
« Reply #21 on: October 30, 2019, 01:03:34 PM »
^Strongly agree with the last post, except for a quibble about terms. I think that instead of ROI (Return on Investment), it should say ROC (Return on Capital).

http://pvcalc.org/ROI-ROC-leverage-graph

Can you explain the graph that is shown in your link?
What is kWh/kWp?
When they say the legend is the leverage what do they mean? It says that 10% leverage is 10% borrowed and 90% capital but the legend lists 100% as an option. How does that work? Your portfolio consists of just borrowed $?

No, I wasn't proposing the portfolio or trying to explain the graph. I just pasted it because it was the first result to the search "ROI vs ROC" that had definitions of both return on investment and return on capital. I meant it as an illustration that the prior poster was typing ROI but conveying the meaning that AFAIK is usually associated with ROC - return on both equity and borrowed capital, where ROI is the return on just the equity.

Sorry for the confusing link.

Here is a clearer (I hope) link:

Return on capital...denominator in formula includes both equity and debt:
https://investinganswers.com/dictionary/r/return-capital

I'm not quickly finding an ROI link that addresses the issue. The poster's meaning was already pretty clear, so it's a minor quibble anyway. Sorry to take up space on a sidetrack.


« Last Edit: October 30, 2019, 01:05:49 PM by BicycleB »

mrmoonymartian

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Re: Leveraged portfolio with a high bond-to-stock ratio
« Reply #22 on: October 30, 2019, 04:36:42 PM »
^Strongly agree with the last post, except for a quibble about terms. I think that instead of ROI (Return on Investment), it should say ROC (Return on Capital).

http://pvcalc.org/ROI-ROC-leverage-graph

Can you explain the graph that is shown in your link?
What is kWh/kWp?
When they say the legend is the leverage what do they mean? It says that 10% leverage is 10% borrowed and 90% capital but the legend lists 100% as an option. How does that work? Your portfolio consists of just borrowed $?
kWh = kilowatt hours. It's looking at returns on solar power using leverage.

Xlar

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Re: Leveraged portfolio with a high bond-to-stock ratio
« Reply #23 on: October 31, 2019, 12:26:50 PM »
^Strongly agree with the last post, except for a quibble about terms. I think that instead of ROI (Return on Investment), it should say ROC (Return on Capital).

http://pvcalc.org/ROI-ROC-leverage-graph

Can you explain the graph that is shown in your link?
What is kWh/kWp?
When they say the legend is the leverage what do they mean? It says that 10% leverage is 10% borrowed and 90% capital but the legend lists 100% as an option. How does that work? Your portfolio consists of just borrowed $?

No, I wasn't proposing the portfolio or trying to explain the graph. I just pasted it because it was the first result to the search "ROI vs ROC" that had definitions of both return on investment and return on capital. I meant it as an illustration that the prior poster was typing ROI but conveying the meaning that AFAIK is usually associated with ROC - return on both equity and borrowed capital, where ROI is the return on just the equity.

Sorry for the confusing link.

Here is a clearer (I hope) link:

Return on capital...denominator in formula includes both equity and debt:
https://investinganswers.com/dictionary/r/return-capital

I'm not quickly finding an ROI link that addresses the issue. The poster's meaning was already pretty clear, so it's a minor quibble anyway. Sorry to take up space on a sidetrack.

Gotcha, for some reason I thought the graph was related to the proposed portfolio! Thank you for the link on ROC.

Xlar

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Re: Leveraged portfolio with a high bond-to-stock ratio
« Reply #24 on: October 31, 2019, 12:27:53 PM »
^Strongly agree with the last post, except for a quibble about terms. I think that instead of ROI (Return on Investment), it should say ROC (Return on Capital).

http://pvcalc.org/ROI-ROC-leverage-graph

Can you explain the graph that is shown in your link?
What is kWh/kWp?
When they say the legend is the leverage what do they mean? It says that 10% leverage is 10% borrowed and 90% capital but the legend lists 100% as an option. How does that work? Your portfolio consists of just borrowed $?
kWh = kilowatt hours. It's looking at returns on solar power using leverage.

Ah ha, it's a solar panel site not an investing site! Makes tons more sense now, thank you :)

effigy98

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Re: Leveraged portfolio with a high bond-to-stock ratio
« Reply #25 on: November 03, 2019, 11:29:00 PM »
Using leverage with TMF/UPRO risk partity in 10% of portfolio I name moonshot off of the hedgefundie adventure. So far up 70%.

Using some leverage to enhance golden butterfly in my big portfolio. I am more conservative with this portfolio.
NTSX 40%
SMMV 20%
EDV 20%
GLDM 20%

This really is not the right forum to discuss anything more advance then VTSAX for the most part as you will get a lot of pushback and negativity even if the numbers say otherwise.