I'm no expert and I've never done margin. In my view, in general, investing up to 100% equities can make sense (in fact I tend to be around 96/4), but beyond 100% equities, the risk/reward ratio diverges sharply - you might get 10% gains but you're also guaranteeing 2.5% losses.
You are only guranateeing 2.5% loss on the margin amount, not your whole portfolio.
I personally do about 90/10 for stocks/bonds.
I don't know what the margin ratios are for a margin call. Even with $1M in equities, you might have gotten a margin call in March of this year. And my understanding is that you don't get to decide what to sell; they can sell anything in your margin account. And you get whatever tax consequences result (i.e., you realize a capital gain or loss at that point, which may or may not be what you want).
In my example, a margin call would be nearly impossible without market dropping rediculous amounts (see math below). Most margin calls in regular times are around 25%.
https://www.investopedia.com/terms/m/margincall.aspReal World Example of a Margin Call
Suppose an investor buys $100,000 of Apple Inc. using $50,000 of his own funds. The investor borrows the remaining $50,000 from their broker. The investor's broker has a maintenance margin of 25%. At the time of purchase, the investor's equity as a percentage is 50%. The investor's equity is calculated using this formula: Investor's Equity As Percentage = (Market Value of Securities – Borrowed Funds) / Market Value of Securities. So, in our example: ($100,000 – $50,000) / ($100,000) = 50%.
Versus in my case where I was arguing only expanding your portfolio by say 25% of your initial amount rather than 100% which is typical max. For example, you with 100k and margin 25k would work out like this:
125,000-25,000(margin)/125k=80%.
Even if your margin investment went to 0, you would still be at 100k-25k/125k=60%, well above the 25% margin call.
You wouldn't risk a margin call until your 125k portfolio dropped to $32k, a 74.4% loss which is more than even most peoples 50% market drop estimats for big crashes.
Margin interest is not deductible. Home mortgage interest can be, although it's obviously more limited since TCJA.
I don't see this as a factor anymore because it is nearly impossible to deduct mortgage interest by overcoming the 24k standard married deduction.
If you have a margin account and hold dividend paying securities, there could be tax implications. Generally, you may think you're receiving qualified dividends (taxed at a preferenced rate), but you may actually be receiving substitute payments (taxed as ordinary income and higher rates).
Hadn't considered that. Although I don't think dividends would be a large part of this.
You seem to be alluding to two different ideas: Start with a $1M portfolio and a $250K mortgage. Then are you suggesting (a) borrowing $250K on margin and paying off the mortgage, or (b) borrowing on margin to go up to $1.25M portfolio and keeping the $250K mortgage? These have two very different risk profiles to me. I would never do (b). I probably wouldn't do (a) either for the reasons already outlined, but I can see the logic. It might be helpful to clarify what you're thinking here for more specific feedback.
I'm trying to understand why we are accepting of investing with our mortgage, but margin is frowned upon (even if done at reasonably safe levels). For example
Neutral: $1,000,000 in stock equity
Good: $1,250,000 in stock equity with a $250k mortgage at 3%
Bad?: $1,250,000 in stock equity with a $250k margin balance at 1-2.5%
Real Bad?: $1,500,000 in stock equity with a $250k mortgage at 3% and $250k margin balance at 1-2.5%. This would actually have even less risk of a margin call than the non mortgage setup.
These all look fairly equivalent to me, so I'm wondering what the catch is if there is one. Obviously the last one has more leverage and more risk, but seems like a fairly safe way to expand your growth in the long run.