Assuming you are bullish on the state of the market on the next 5-10 years what would be a healthy amount of margin to have as a % of your portfolio?? Even better is there a formula or paper written that would tell you the optimal margin % as a function of expected yearly average returns (obviously an assumption), % at which margin call is triggered, and margin interest?
I know large banks and hedge funds do margin optimization but they do it while also performing hundreds and maybe thousands of trades per sec (?). I am a long term investor so I am looking for long term margin investing.
From some research I have done in trying to find this margin optimization formula I think it has to do with the capital market line being closer to the risky investing side than to the safe one.
By the way I am expecting the optimum range to be between 5%-20% I really dont think that the right answer is 0% margin... Even at 115% investment if the margin maintenance is 30% I believe the portfolio would need to drop around 75-79% before getting a margin call, so even in the case of a major crash I think you would be safe.
Any good literature on this would be greatly appreciated. Specially if it has some good ol math
Thanks for reading
Submitted March 19, 2021 at 01:37AM by avidd6 https://ift.tt/3s18XuV
