What is Reddit's opinion of Lifecycle Investing: A New, Safe, and Audacious Way to Improve the Performance of Your Retirement Portfolio?

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Yup, and if you'd like to go back to the source: https://www.amazon.com/Lifecycle-Investing-Audacious-Performance-Retirement/dp/B005X4I7ZI

My take is that it's not the worst idea in the world, but like much of investing, it depends on the circumstances of the investor. A young person can take on more risk than an elderly person, and a young person with a guaranteed job for life can take on more risk than 95% of people.

It’s investing with 2x leverage so you will get double the returns or losses of SPY. Because SPY typically goes up, it’s a profitable strategy done to maximize your retirement savings with minimal risk if done with a responsible percentage of your portfolio.

If you want a full explanation of it and how to implement it you could read this book: https://www.amazon.com/Lifecycle-Investing-Audacious-Performance-Retirement/dp/B005X4I7ZI

I think he has a free academic journal article as well basically outlining the same concept.

Practically speaking, spy is at something like $440 right now, so buy a $220 spy leap expiring in 2023.

If the premium on it is high, which it’s not right now, you could find another way to invest with leverage.

Hey mate, if you go the route of a margin loan I wouldn’t suggest an LVR as high as this - beyond 2:1 I believe the cost of more regular margin calls outweighs the benefits. This is the reason I use the equity builder product - I have no risk of margin calls so I can lever up to 75% and don’t have to worry about getting called as the market drops. The downside is the amount of principal to be paid back each month makes those repayments much higher, however this will only become an issue as the loan amount goes above $500k. At that point I can drop the LVR to 65% (still a ~2:1 ratio) and switch from a 10 year up to a 15 year loan term, dropping my monthly repayments by around 30% and allowing me to then borrow more as the portfolio grows.

I would suggest checking out this book, it has a lot of supporting info and talks specifically (with evidence) about why a 2:1 ratio is ideal when margin calls are a possibility: https://www.amazon.com/Lifecycle-Investing-Audacious-Performance-Retirement/dp/B005X4I7ZI.

As for your emergency fund estimate, you would have to run the numbers to figure that out - I haven’t done this as I’ve gone the equity builder route. Hope this helps!

Not sure I understand what you're trying to say.

I'll just share that the HFEA strategy seems to make sense to me. If we try to go for "risk parity" (best risk/reward ratio in a sense - we use Sharpe ratio for this I believe to measure such things), 55% stock/45% bonds unleveraged is right at that spot.

And then we juice that up by using leveraged ETFs. So we're basically 165% stocks, 135% bonds (3x leverage).

Yes, I don't think we'd see many who have been on this type of strategy for years. Leveraged ETFs are a relatively new thing anyway. So mostly it've only been backtested and looks good in theory. Which is why many of us rightly would not risk more than 1-5% of our portfolio to this strategy at first.

The 55/45 UPRO/TMF, in backtest, actually shows a better Sharpe & Sortino ratios than 100% VTSAX that many of us here already do. Maximum drawdowns is similar to 100% VTSAX as well.

We can also see actual returns of those who have been in HFEA for awhile, including those who rode out the COVID crash here.

I'm not sure HFEA is something that came up or was created on Bogleheads. HFEA is based on "lifecycle investing" concept I believe unless I'm mistaken.

Most people borrow to invest. They usually use their home as collateral to secure lower interest rates. I am referring to a mortgage. Anyone who starts investing before paying off their student loans/mortgage/credit cards is borrowing to invest.

All debt is not created equal, you don't want to be investing while you have debt with high interest rates (say >5% interest). You also need to be wary about the terms of the loan. If you are using margin loans or financial derivatives you need to worry about margin calls. If you have 0% credit cards you need to realize that it is possible you will not be able to secure another 0% card to do a balance transfer.

You also need to worry about your ability to service the loan in the case of unemployment and/or a severe crash in your investments. The more unstable your income, the less sense leverage makes.

If you are new to investing you are treading in dangerous territory. You can get yourself in a bad situation very quickly with leverage. I suggest avoiding leverage until you master the basics. Here is a bunch of links to research and forums where leverage is explored as a responsible investment tool as well as an example where leverage can get you into a lot of trouble:

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1149340

https://www.amazon.com/Lifecycle-Investing-Audacious-Performance-Retirement/dp/B005X4I7ZI

https://www.bogleheads.org/forum/viewtopic.php?t=5934

https://www.bogleheads.org/forum/viewtopic.php?t=143037

https://www.bogleheads.org/forum/viewtopic.php?t=274390

https://www.bogleheads.org/forum/viewtopic.php?t=272007

Finally, you will probably find widespread leverage aversion from other investors. Thirty or forty years ago they used to scoff at mindless passive index funds but now they are considered the most prudent investment vehicles. I imagine in the future there will be target date funds that use moderate leverage for young people and deleverage with age.

This is the book: https://www.amazon.com/Lifecycle-Investing-Audacious-Performance-Retirement/dp/B005X4I7ZI

Read this: https://www.amazon.com/Lifecycle-Investing-Audacious-Performance-Retirement/dp/B005X4I7ZI

You are basically describing market timing with margin. The data, as well as the boglehead philosophy, suggest that buying the dip does not work. If you are willing to use margin, then not using the margin is similar to having available capital uninvested waiting for a crash.

There is some evidence (summarized in this book) that investing with margin for young investors leads to better outcomes, barring behavioral issues. However, the investor would have to be very risk tolerant, continuing to invest on margin after potentially being wiped out.

As you're well aware, the strategy is high-risk. But... it's not actually as foolish as a lot of folks in this thread are saying it is. For a formal version of this idea, check out "Lifecycle Investing" (https://www.amazon.com/Lifecycle-Investing-Audacious-Performance-Retirement/dp/B005X4I7ZI) and some reviews online diving into the strategy that book advocates. The pitch is a fleshed-out strategy which you're intuitively realizing: When you're young, it's not actually crazy to invest in leveraged assets that can go to zero, as long as some other assumptions are met (including non-trivial things like a predictable future income stream and nerves of steel to stick to a plan even if it initially evaporates your investment).

The assumptions aren't minor, and it's a tough strategy to execute for an average person. But from all the reviews of the strategy I've seen online, no one ever really disagrees with the math behind it. Mostly it's about practical challenges and the fact that the average investor isn't actually going to follow through on the strategy through the bad times.

Hey OP, a lot of people here are pointing out the high crypto allocation, but there is research showing that focussing 100% on higher-risk assets early in your earning years and then transitioning to safer asset classes later leads to better risk adjusted returns in the long run.

You can read the book here, or the shorter research paper here, but the approach the authors analyse is using margin investing to invest in equities at 2:1 leverage until your target equities allocation is reached, and then focussing on paying down the loan and then transitioning to bonds at the end. With the same logic, it is fair to suggest that if your target portfolio is 2M and should contain 20% crypto, then you should invest 100% of your cashflow into crypto up until the target allocation, then switch to buying equities, and then to bonds later on. This is the approach I am using now, and I think given your post that you'd find the approach an interesting read.

Lifecycle Investing is a great book based on thorough research from Yale economists that I highly recommend on this topic. The original research paper the authors wrote that inspired the book actually played a large role in how I invest today with leverage. In the book they talk about the importance of frontloading risk via leverage earlier on in your life, eschewing the typical 70-30% stocks to bonds split recommended by 'the birthday rule' that target retirement date funds typically follow for a more aggressive 200-0% stock to bonds allocation, aka leveraging yourself 2:1 and forgoing bonds altogether until a later age. By using their preferred method buying leaps to achieve a 2:1 leverage margin on your initial dollar investment earlier on in life they have shown that historically this strategy greatly outperforms a simple buy and hold approach. I lever up to 2-3 times using long dated leaps and use credit spreads and PMCCs to further augment my yield, though the authors are more conservative with a hard 2:1 leverage rule early on. The book made me think of things differently, like treating your paycheck as a guaranteed annuity/bond in and of itself, meaning your exposure to bonds is actually already overstated when you first start working because your paycheck likely represents an outsized portion of current and expected net worth. I now have about 350k in my investment accounts at age 29 (half of that came this year from cashing out on some risky plays) and don't plan on deleveraging any time soon. I'm also aggressive on the 3-5 dte short call credit spread side for SPX so that sort of negates a lot of my positive delta risk, I have -500-1000 SPY delta at any given time. For me the goal is to use leverage like leaps combined with theta yield strategies to help accumulate more shares as quickly as possible. My favorite tool here in this regard is the PMCC since I get to use less capital to sell more covered calls and plow the earnings right back into shares. Just be careful with your strikes on your leaps with markets at all time highs, be conservative when going long on a depreciating asset like leaps and be conservative on the short pmcc side as well since you may have to roll quite a few times if the market just keeps ripping like it did to me all year.

A week ago I wrote on another thread about why using NAB's equity builder makes more sense than a margin loan.

First thing's first, research has shown that leverage will almost always produce better risk-adjusted returns compared to other standard investment strategies (including standard equity/bonds ratios, and gradually changing ones that most financial advisors suggest). For more info on this, it is best to read the Lifecycle Investing book, or read the (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1149340)[researchers' paper] for a condensed version.

So let's talk about why equity builder is a better option than margin lending (and their associated margin calls). The central idea is that by borrowing to invest early on, you increase your exposure at the start of your journey and can decrease it later on (by switching to a greater bond allocation sooner). This spreads your equity exposure throughout your life instead of having most of your retirement destiny dependent on how the market performs in the final years of your accumulation phase when your portfolio is largest. This way you can achieve the same returns with less risk, or you can keep your allocation the same throughout your whole accumulation phase and end up with the same risk but better returns.

The higher your leverage, the greater returns you should see (as long as the cost of leverage is less than your returns). With more leverage however, margin calls become more likely to occur. In the paper/book the researchers find that the optimum leverage ratio during your accumulation phase is 2:1, because this balances the likelihood of being margin called (which increases with your leverage ratio) with the increased returns available with that leverage. They find that leveraging beyond this ratio pushes your risk of margin calls (and the risk of being completely wiped out on downturns) higher, and this offsets the additional gains you would make from the additional leverage. Note that even at 2:1 there is a risk you are wiped out, but because you can start again, you can make up any ground you lost.

Now, what if you could take on leverage but didn't have the risk of margin calls? This is where NAB's Equity Builder comes in. Equity Builder lets you invest in a smaller list of diversified stocks with decreased risk while making your repayments both principal and interest (a margin loan only requires you to pay the interest). In return, you have no risk of margin call as long as you can keep paying your monthly payment, regardless of how low your portfolio value drops. This means you can now safely leverage up to 3:1 and never have a margin call. Even at 2:1, the equity builder will end up with larger returns than a margin loan due to no need for rebalancing or selling at the bottom when a margin call occurs. This gives you all of the upside without the risk of being wiped out.

IKBR will have a $25k limit as mentioned above, check out NAB’s Equity Builder for a safer and more accessible option, and read Lifecycle Investing to learn just how good of a strategy this can be (or read the research paper that the book is based on)

VTSAX isn't traded on an exchange, so there are no options on it. You can buy options on VTI, but it's not a very liquid market.

Now! A good approach to thinking about this is Lifecycle Investing. If you're interested in this, please go read this Bogleheads thread on Lifecycle Investing and read this book by the economists who "created" the idea. It can definitely be effective, but you need to be careful about introducing leverage to your portfolio.

I suggest you give a read to Lifecycle Investing [1]. In brieIf you have access to Options, it is usually safer in the long-term to use leverage on a diverse portfolio (usually targeting safer ETFs, such as SPY or VTI). You get a sense of how this can be useful can also be found on the book's website.

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[1] https://www.amazon.com/Lifecycle-Investing-Audacious-Performance-Retirement/dp/B005X4I7ZI

[2] http://www.lifecycleinvesting.net/

A related concept is the idea of lifecycle investing.

http://www.amazon.com/Lifecycle-Investing-Audacious-Performance-Retirement/dp/B005X4I7ZI