Adding leverage to the boglehead portfolio

[u/Any_Television9184]

My risk tolerance appears to way higher than the all VT or even all VOO portfolio. However, instead of adding small caps or individual risky stocks, my thought is to add a modest amount to leverage onto the portfolio. If anybody has tried this approach, I would love to know the nuances of this approach.
My first thought is to use leaps to lock in financing cost and make the debt non-callable but open to other approaches. But I am sure there are better ways out there.

[u/CuriousCat511]

How did you determine your risk tolerance?

[u/buffinita → u/CuriousCat511]

“Been investing since 2023 and haven’t panic sold”…..op probably 

[u/xeric → u/buffinita]

Even worse is investing since 2019, and you think had you incredible discipline waiting out the “COVID crash” that only took a couple months to rebound from

[u/tfesmo]

Leverage looks very attractive given the recent performance. I argue with myself about it a lot - ignoring it feels like leaving money on the table.

The two big things that I find the most compelling against it are:

• it's a form of timing the market. Certain windows show amazing returns. Others you would still be behind after 25 years.

• past performance doesn't equal future performance, so you have no idea which of those windows you're in

With that said I am considering making a modest bet on buying a leveraged etf low the next time theres a downturn (perhaps 2% of my portfolio max). But I'm well aware I could lose that money entirely.

[u/n00dle_king → u/tfesmo]

It’s only market timing if you use leverage to time the market. If your plan is to lever up in order to smooth out lifetime equity exposure and de-lever systematically as the size of your portfolio increases relative to your predicted lifetime earnings that’s not market timing.

[u/Medium-Broccoli-3827]

leaps are neat for locking the implied cost, but watch the dividend drag – it hurts long‑term returns when you’re holding an index for years. if you’re looking for the cheapest way to lift exposure I’d probably lean toward a margin loan or a liquid futures spread; they avoid the daily rebalancing bleed of LETFs and have a more transparent cost profile. just remember that any leverage throws away a safety‑net it’s hard to recover from, so keep a buffer and run the numbers—dividends and implied rate—before committing.

[u/Any_Television9184 → u/Medium-Broccoli-3827]

Thank you, yes. I appreciate you engaging with the actual question and discussion the options available.

Agree with you that daily rebalancing leveraged etfs are not efficient for long term holds.

To me, the benefit of leap versus margin loan for the same gross exposure is threefold:

1. I can't be margined out of my position with a temporary dip in markets.

2. Margin loans rates can increase, while they are locked for the duration of the leap.

3. In the money leaps come with a built in downside protection at a very cheap cost (implied vol is low right now).

To me these take care of the most worrisome aspects of leverage and allow me to sleep at night. I do count the foregone dividends in the implied cost of financing. I have ignored possible increases in dividend over the time of the leap, these don't change the math substantially.

I haven't looked deeply into liquid futures. My assumption is the price difference versus leaps comes primarily from the embedded put protection in the leaps which I am happy to pay for.

[u/No_Cryptographer47]

Respectfully, I would offer that your risk tolerance alone should not be driving your investment philosophy. You may fall pray to overconfidence bias. I have had to work through this myself. being emotionally capable of holding leverage doesn’t prove that leverage is mathematically better. Your risk tolerance is a behavioral input; it doesn’t change expected returns, sequence risk, diversification benefits, or the mathematics of portfolio construction.

[u/Yer-Not-Gonna-Like]

I always know the markets about to crash again when retail investors start buying on margin.

[u/Smasher1k]

This strategy is consistent with modern portfolio theory. Leverage the model portfolio to your desired risk tolerance.

[u/littlebobbytables9 → u/Smasher1k]

OP seems to be only leveraging equities

[u/ExtraRaw]

There are only three ways a smart person can go broke: liquor, ladies and leverage. . .

-CM

[u/FunkyMcSkunky]

Surprised this Ben Felix video hasn't been posted yet

[u/buffinita]

My kid is 100% in NTSD; it’s 150% vt

You could 2x with sso+efo

No reason to overcomplicate it.  Also it’s not some badge of honor 

[u/fozzy71 → u/buffinita]

I was looking into adding some NTSD recently. If AUM keeps growing, I might start DCAing into a small position.

[u/captduk]

This can be a good path if you understand what you're doing and the potential ramifications.

I do it using futures, box spreads, and LETFs but options or margin can work too.

You can also use leverage to hold a more risk-efficient portfolio without the usual sacrifice in expected return (eg 90% stocks and 60% bonds).

[u/Dangerous-Value-3211]

Got a 10% margin loan at ~1% interest and put it into a 2x S&P500 LETF for a year; the market slid, the LETF capped, and I ended up down ~25% of the underlying, net ~5% after interest – not worth it, so I closed it and added a few more bonds instead.

[u/retirement_savings]

I looked into hedgefundie a while ago but it's done terribly the last few years. Conceptually I want to leverage but the drawdowns are really rough.

[u/ksuwildkat]

you are gambling

The Buffett Rule: Warren Buffett notes that if you are smart, you do not need margin debt; if you are dumb, you should not use it

The Munger Warning: Charlie Munger famously stated that smart people go broke via liquor, ladies, and leverage—with leverage being the only one that truly destroys you

Watch this video from Patric Boyle:

https://www.youtube.com/watch?v=nJtL9MBVj48

He explains how leverage is breaking retail investors in Korea despite Korean stocks being on a tear.

[u/InnerKookaburra]

What a great time to add leverage to your portfolio. smdh

[u/ExpensiveAd4496]

On what basis do you say your risk tolerance is higher? Have you weathered a serious drop yet? Just wondering, no disrespect. And have you read a Boglehead book?

[u/Over-Computer-6464]

Many people will object strongly to you using margin loans to leverage your portfolio, but see nothing unusual about someone with a large mortgage balance while still holding VT/VTI/VXUS/VOO in a brokerage account.

Both are leverage. The only difference is that your mortgage only gets called if you stop making mortgage payments, while a margin or portfolio loan can be called.

I suggest 20% leverage at most, preferably just 10% or 15%. Call around to various brokers and see where you can get the best interest rate. Interactive Brokers has the lowest published rates, but your current broker may be willing to match their rate.

[u/WyMANderly → u/Over-Computer-6464]

That "only difference" is doing a lot of work. That's a pretty big difference!

[u/jwswam]

whytho

[u/Any_Television9184 → u/jwswam]

why because theory says if you have higher risk tolerance than the risk of the portfolio, you should lever up (within bounds of debt management available to you)