I'm just starting to learn about Margin and wanted to make sure I'm not misunderstanding anything before going forward.
My portfolio allocations are:
42% U.S. Stock Market
24% International (ex-US) Developed Markets
12% Emerging Markets
14% U.S. Small Cap Value
8% International (ex-US) Small Cap Value
After doing some portfolio backtesting I came to the conclusion that with a portfolio like mine the worst loss you can take is about 60% which was in 2008. I'm still very young, however, I really doubt that we'll see anything like that again.
I'm planning to leave my old portfolio of about 100K as it is and start a new one from scratch using the same allocations on IBKR.
The reason for this is that I've been investing since 2018 and know I can stomach volatility easily and wouldn't mind adding some more volatility for an increase in return.
Margin fees are at 2.5% on IBKR (And lower for bigger portfolios). Taking the past performance of this portfolio, I can't imagine we go through a long period where this isn't met. However, this isn't fixed and could be increased in the future, if that is the case then I would de-leverage depending on the fee rate.
I plan to use an initial margin of 80% (For every $100 I buy IBKR gives me $25 extra).
The overnight maintenance margin on IBKR is 50%, meaning that for me to get margin called, I would need my portfolio to go down by 60%. As stated, this portfolio is going to be new, and I'll be putting money from whatever I save monthly into it, so even if I'm the worst market timer in the world averaging in will prevent me from buying at the top when such a 60% drop happens.
And if such a situation were to happen, I can always transfer a part of my old portfolio and put it on IBKR to increase collateral.
What do you guys think? Does this strategy make sense? Am I misunderstanding anything? Thanks for any replies!
Submitted November 29, 2021 at 10:51AM by Dragonlordsk8er https://ift.tt/3Ec6TGA
