Triple Levered Retirement Accounts?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
Boglelicious123
Posts: 6
Joined: Tue Jun 11, 2019 9:50 pm

Triple Levered Retirement Accounts?

Post by Boglelicious123 » Tue Jun 11, 2019 9:57 pm

Hello all. Really have learned a lot from all of you as I’ve been checking out this forum for awhile and this is my 1st post. Here is my situation: I have low cost index funds in my 401K and my wife does as well. In our taxable account, I feel like I should change the “rules” a bit and focus on factor & individual stock investing strategies. In my mind we will be triple levered if we have yet another account with a similar asset allocation.

I understand that factor/individual stock investing MAY underperform the broad market, but I feel like I’m protected by investing in index funds in our main 401K accounts. If factor/individual stock investing does outperform the market, then it’s an obvious win-win. Am I looking at this in the wrong way?

User avatar
Misenplace
Moderator
Posts: 701
Joined: Mon Feb 01, 2016 9:46 pm

Re: Triple Levered Retirement Accounts?

Post by Misenplace » Tue Jun 11, 2019 10:04 pm

This post has been moved to the Personal Investments forum.

OP, you will get better help if you post using the Asking Portfolio Questions format.

User avatar
willthrill81
Posts: 10152
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Triple Levered Retirement Accounts?

Post by willthrill81 » Tue Jun 11, 2019 10:17 pm

Factor investing is very likely to be far less risky than owning individual stocks. Many here go in for factors, some all in. My advice to you is this: if you decide to tilt your portfolio in a particular direction, be aware that this will certainly result in you underperforming the market as a whole at some point in the future, and this underperformance can go on for years, perhaps a decade or longer. If you're not prepared to deal with that, then don't do factors.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

User avatar
Dialectical Investor
Posts: 443
Joined: Mon Dec 03, 2018 11:41 pm

Re: Triple Levered Retirement Accounts?

Post by Dialectical Investor » Tue Jun 11, 2019 10:21 pm

Welcome. Yes. You are looking at this the wrong way. Just because you hold the same assets in multiple accounts does not mean you are levered. Aside from tax consequences and access issues, it does not matter where things are located--money is fungible. You could, if you wanted to, take your taxable account and split it in two different taxable accounts. You can see that would change nothing.

Whether you should hold individual stocks or focus on factors is a separate issue, and those decisions should be evaluated on their own merits. You're not going to get a lot of support for individual stock selection here.

The risk-reward trade-off is real: the larger the opportunity to greatly outperform the market and have enough dollars invested in that strategy to make a meaningful difference, the larger the opportunity to underperform meaningfully as well. You can't have one without the other just by going long stocks. In that sense, protections are limitations, and limitations are protections (from deviation, that is.)

MotoTrojan
Posts: 4514
Joined: Wed Feb 01, 2017 8:39 pm

Re: Triple Levered Retirement Accounts?

Post by MotoTrojan » Tue Jun 11, 2019 10:27 pm

Why no Roth IRAs?

typical.investor
Posts: 868
Joined: Mon Jun 11, 2018 3:17 am

Re: Triple Levered Retirement Accounts?

Post by typical.investor » Tue Jun 11, 2019 10:31 pm

Boglelicious123 wrote:
Tue Jun 11, 2019 9:57 pm
Hello all. Really have learned a lot from all of you as I’ve been checking out this forum for awhile and this is my 1st post. Here is my situation: I have low cost index funds in my 401K and my wife does as well. In our taxable account, I feel like I should change the “rules” a bit and focus on factor & individual stock investing strategies. In my mind we will be triple levered if we have yet another account with a similar asset allocation.

I understand that factor/individual stock investing MAY underperform the broad market, but I feel like I’m protected by investing in index funds in our main 401K accounts. If factor/individual stock investing does outperform the market, then it’s an obvious win-win. Am I looking at this in the wrong way?
Sure, use factor & individual stock investing strategies because as you say, they won't destroy you in your situation.

Logically though, if (as you say) you will be fine overall even if they underperform the broad market, then I assume you will be fine using broad market only funds in the case that the factor & individual stock investing strategies outperform.

(1) factor & individual stock investing strategies underperform
(2) market returns
(3) factor & individual stock investing strategies outperform

I mean how can you be fine with (1) but not with (2).

To me, viewing the market as being "triple levered" because you have three accounts is deluding yourself. If someone has six accounts, are they 6X levered? No, you are not levered at all.

So the question is, is the effort worth it? More than anything, I think those with a positive view of tilting simple derive interest from doing so.

In any case, I am suspicious of backtested results for factor portfolios that are hypothetical in nature, don't involve real funds, and includes periods when factor investing wasn't so easy to target.
Factor funds haven’t been “diversifying to the market when you’ve needed it this month,” Maneesh Shanbhag, who co-founded Greenline Partners LLC after five years at Bridgewater Associates LP, said. “They get correlated repeatedly over time, and marketing pitches of these funds have largely ignored that.”

Research backs up the idea that investor redemptions create systematic bursts and strange correlations. But that means perceived diversification benefits fail when most needed, according to Rama Cont, a University of Oxford professor whose paper, first published in 2012, examines the phenomenon.

“It’s exactly the same thing that happened in the quant crash in 2007,” Cont said. “Investors are not passive -- their typical reaction is to deleverage in a big loss. That reaction has to be included into models, otherwise you don’t see the concentration risk.”
So sure include factor exposure to your hearts content. Just understand that if/when there is a crisis of confidence, that your factor funds may not be as diversifying as you hope.

Individual stocks ... yeah good luck with that.

User avatar
Tyler Aspect
Posts: 1164
Joined: Mon Mar 20, 2017 10:27 pm
Location: California
Contact:

Re: Triple Levered Retirement Accounts?

Post by Tyler Aspect » Wed Jun 12, 2019 12:50 am

Owning the same funds in the taxable account as what is offered in your and your spouse's 401k account is not "triple levered". Triple levered refers to certain stock ETFs that aims to obtain triple the daily stock return of a common stock index, but with the risk that its net asset value could drop to zero in a single day.

Replicating the same funds across accounts could reduce your tax efficiency modestly, but you can fix it by understanding the issue of tax efficient asset placement. Factor investing or individual stocks are different topics together. I do not believe in factor investing or individual stocks.
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

User avatar
Phineas J. Whoopee
Posts: 8324
Joined: Sun Dec 18, 2011 6:18 pm

Re: Triple Levered Retirement Accounts?

Post by Phineas J. Whoopee » Wed Jun 12, 2019 4:29 pm

Poster HEDGEFUNDIE is attempting to provide an existence proof that math isn't math. If in his own individual case, whether or not he provides his brokerage statements, it happens to work out with a gain, then, well, his triumphant conclusion will be that math isn't math. You may wish to follow the poster's posts.
PJW

retiredjg
Posts: 36283
Joined: Thu Jan 10, 2008 12:56 pm

Re: Triple Levered Retirement Accounts?

Post by retiredjg » Wed Jun 12, 2019 4:38 pm

What is triple levered and why is it a good thing or a bad thing?

If you are a beginning investor, you probably should not be considering factor investing at all. That is an advanced concept. It also usually required a sizable account outside your 401ks because the appropriate funds are not available in most work plans.

Individual stocks are often a fools errand. If you choose to use them, keep that to 5% or less of your entire portfolio. That will hardly be enough to make a great deal of difference in your portfolio performance.

You should fill both 401ks and two IRAs before considering putting retirement money into a taxable account. Are you doing that?

What you are already doing is quite likely a good plan. If you want help with it, please post your information in the format shown in the link at the bottom of this message. It is some work, but it is worth it because you will learn a lot.

User avatar
Stinky
Posts: 1012
Joined: Mon Jun 12, 2017 11:38 am
Location: Sweet Home Alabama

Re: Triple Levered Retirement Accounts?

Post by Stinky » Thu Jun 13, 2019 10:19 am

Tyler Aspect wrote:
Wed Jun 12, 2019 12:50 am
Owning the same funds in the taxable account as what is offered in your and your spouse's 401k account is not "triple levered". Triple levered refers to certain stock ETFs that aims to obtain triple the daily stock return of a common stock index, but with the risk that its net asset value could drop to zero in a single day.

Replicating the same funds across accounts could reduce your tax efficiency modestly, but you can fix it by understanding the issue of tax efficient asset placement. Factor investing or individual stocks are different topics together. I do not believe in factor investing or individual stocks.
My feelings exactly.

We have six buckets of assets - IRA and Roth IRA for me and DW, taxable account, and DAF. We have only three stock funds and two bond funds across all of the buckets, and allocate assets based on portfolio as a whole. So, for example, we happen to have VTSAX in four buckets.
It's a GREAT day to be alive - Travis Tritt

Post Reply