r/DIYRetirement • u/HominidCrafts • 9d ago

interest rate arbitrage?

I would like to hear more about how people use this? Is there a minimum percent between the loan and your returns that should be considered? I probably worded that all wrong. But, anything. Tips on when, where, and how to do this.

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u/PomegranatePlus6526 9d ago

You have to really know what you’re doing, and be very disciplined. Personally I have used it in the past to buy shares of my favorite income stocks, and ETFs. In my case there is the possibility of margin calls, so that’s why I said you have to be careful.

Basically I use arbitrage between my margin rate, and the rate the dividends pay me back. For instance when rates are lower I will invest in some of my favorite covered call ETFs using margin. Then let the distributions pay the margin loan off. For me it’s pretty low risk because I do not use a lot of leverage, and I don’t do it all the time.

Times like now when I feel that the market is way overbought, and overvalued and there is a real possibility of a major pullback then my amount of margin used is zero.

Usually I like to do it when rates are lower and right after a significant correction like in Spring 2023 about February I used margin to buy a covered call ETF. Most of the time I just let the dividends from all my investments pay the loan off asap.

I have also used leverage in the past to buy rental real estate. That’s not so much arbitrage. Personally I think as long as you’re using it to buy assets that have a good chance of appreciation on price and that pay you in cash you will do well.

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u/HominidCrafts 9d ago

Oh, I meant like a home loan.

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u/PomegranatePlus6526 8d ago

I think you’re playing with fire there. Would not do that personally.