HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Locked
hohum
Posts: 56
Joined: Thu Jan 03, 2019 1:34 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by hohum »

HEDGEFUNDIE wrote: Sat Feb 16, 2019 2:22 pm
hohum wrote: Sat Feb 16, 2019 2:17 pm It's totally possible interest rates stay low Japan style for another 20 years, so I don't want 14% if I could get 18%. On the other hand, if yields on the long bond start going up every year .... Decisions, decisions.
18% is the blended CAGR across both high and low interest rate environments. If interest rates stay low, the CAGR is more like 25%. To me that is worth taking the bet.
I agree with you.
30% VTI | 20% AVUV | 15% AVDV | 15% SGOL | 10% BRK.B | 10% VGSH
finite_difference
Posts: 3633
Joined: Thu Jul 09, 2015 7:00 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by finite_difference »

I thought this strategy required regular rebalancing to avoid the volatility erosion that can kill you with a leveraged fund?

I see folks mentioning daily, weekly, monthly and yearly rebalancing strategies. But didn’t the backtest assume daily rebalancing? Or was it also backtested to show you can rebalance at any interval of your choosing?

Edit: never mind, seems new backtest uses quarterly rebalancing (18% CAGR.) — see updated OP.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh
GrowthSeeker
Posts: 1071
Joined: Tue May 15, 2018 10:14 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by GrowthSeeker »

HomerJ wrote: Sat Feb 16, 2019 1:58 am I'm saying it's easy to just say "Oh, it's play money" right now. If it grows quite large, and you just let it ride, there WILL be some anxiety for most people (maybe not you, Mr. Cool as Cucumbers) :)

People anchor. If you have $600,000 in normal accounts, and your $10k play bet grows to $400,000, people are going to say "Hey, I'm worth a million dollars!" A smart move would be to take some risk off the table at that point. People WILL think about it, at least. It WILL be a source of some anxiety.

"Man, that's a huge chunk of my net worth riding on a bet".

If the risk shows up, and it drops to zero, very few people are going to say "Oh well, it was just $10k."
From the Counting Chickens Before They're Hatched Department:
So, now the math problem I'm mulling over is, if you have a strategy with great potential growth but a small probablity of a huge loss, what would be a mathematically sound plan for taking some off the table periodically? Math factors could include percent of total portfolio, and recent performance of the "play money" portfolio. But, it's not a pure math question because it has to do with one's own psychological factors such as greed, FOMO, regret avoidance, Pain of Loss vs Joy of Gain, etc.
Just because you're paranoid doesn't mean they're NOT out to get you.
Topic Author
HEDGEFUNDIE
Posts: 4801
Joined: Sun Oct 22, 2017 2:06 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by HEDGEFUNDIE »

GrowthSeeker wrote: Sat Feb 16, 2019 3:51 pm
HomerJ wrote: Sat Feb 16, 2019 1:58 am I'm saying it's easy to just say "Oh, it's play money" right now. If it grows quite large, and you just let it ride, there WILL be some anxiety for most people (maybe not you, Mr. Cool as Cucumbers) :)

People anchor. If you have $600,000 in normal accounts, and your $10k play bet grows to $400,000, people are going to say "Hey, I'm worth a million dollars!" A smart move would be to take some risk off the table at that point. People WILL think about it, at least. It WILL be a source of some anxiety.

"Man, that's a huge chunk of my net worth riding on a bet".

If the risk shows up, and it drops to zero, very few people are going to say "Oh well, it was just $10k."
From the Counting Chickens Before They're Hatched Department:
So, now the math problem I'm mulling over is, if you have a strategy with great potential growth but a small probablity of a huge loss, what would be a mathematically sound plan for taking some off the table periodically? Math factors could include percent of total portfolio, and recent performance of the "play money" portfolio. But, it's not a pure math question because it has to do with one's own psychological factors such as greed, FOMO, regret avoidance, Pain of Loss vs Joy of Gain, etc.
If one would like to regularly take money off the table (not something I recommend), I would suggest doing so when the strategy far outperforms the S&P 500. Over the 32 years of the backtest, there have been 7 years when the strategy has delivered over 50% return (compared to 0 years with the S&P 500). I would sell some after those years.
jaj2276
Posts: 581
Joined: Sat Apr 16, 2011 5:13 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by jaj2276 »

Time2Quit wrote: Sat Feb 16, 2019 1:05 pm Call me crazy, but I am going to play this game even though I do not need to. I allocated 3 accounts with $30k in each account for the kids. The kids can have a nice little easter egg that they will discover in the will when we are gone.

It might be worth a lot or it might not be worth anything. Time will tell.
I'm hoping to talk my dad in to doing something like this. I need no inheritance from him and would love for him to spend his last dime on his death bed. However he's more frugal than I am and will likely leave a good amount of money that I'm not counting on nor expect to need.

If he could put some of his money in this type of portfolio now, enjoy the ride of watching the portfolio for the next 20 years (he's obsessed with the market), and then have that to pass on to his kid/grandkids, I think that would make him a very happy man. And if it doesn't work out, then I don't think there will be a minute of regret.
staythecourse
Posts: 6993
Joined: Mon Jan 03, 2011 8:40 am

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by staythecourse »

jaj2276 wrote: Sat Feb 16, 2019 4:12 pm
Time2Quit wrote: Sat Feb 16, 2019 1:05 pm Call me crazy, but I am going to play this game even though I do not need to. I allocated 3 accounts with $30k in each account for the kids. The kids can have a nice little easter egg that they will discover in the will when we are gone.

It might be worth a lot or it might not be worth anything. Time will tell.
I'm hoping to talk my dad in to doing something like this. I need no inheritance from him and would love for him to spend his last dime on his death bed. However he's more frugal than I am and will likely leave a good amount of money that I'm not counting on nor expect to need.

If he could put some of his money in this type of portfolio now, enjoy the ride of watching the portfolio for the next 20 years (he's obsessed with the market), and then have that to pass on to his kid/grandkids, I think that would make him a very happy man. And if it doesn't work out, then I don't think there will be a minute of regret.
Don't think this makes sense. Basically, you said he is simple/ frugal and doesn't need the excess money and any money leftover you don't care too much about. Take into account he watches markets closely and of course his life expectancy is shorter then many on this board. Doesn't sound like he is a good candidate for this plan. If I was your father I would not be interested in this plan. This is likely the VERY same reason most of the folks who are looking at it are not interested as they are older and don't have 20+ years to just leave this money alone without touching it.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle
staythecourse
Posts: 6993
Joined: Mon Jan 03, 2011 8:40 am

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by staythecourse »

mrspock wrote: Sat Feb 16, 2019 2:24 pm ... and suddenly we are holding triple leveraged UPRO and TMF for months and maybe years...
As mentioned before if we do do this we will likely be in a very few folks count (0- few thousand) in the world who actually do it for long term. My guess, is the other folks on the web who have even discussed this are unlikely to do it for very long as they are active traders at heart and will jump ship either way. If the plan does well they will cash out early and if it does poor they will jump ship.

Maybe the most interesting will be a bunch of passive investors using them in a passive way which are meant for active traders. Quite unusual needless to say.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle
samsdad
Posts: 758
Joined: Sat Jan 02, 2016 5:20 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by samsdad »

.
I have the latest data!

Image

Just kidding. It's a thought experiment. Here it is: all that you know is that the two lines are going to do this periodically going forward relative to one another. You have no idea where you currently are on the timelines.

On one hand, you have no idea how long the UPRO/TMF portfolio will lag the 500. From today it could be 20 years or more. Or it might be the next 20 minutes. The only absolute zero is, well, $0 (not accounting for inflation and the cost of not being in the 500 for the time period at hand; $10k invested in the 500 back in '73 would be about $140k today adjusted for inflation, for example.)

On the other hand, you have no idea how much it'll outperform the 500 when it finally does. You're fairly confident that it will, one day, at least in principle. At its next zenith, it could be by $.01 or it could be by millions, even adjusted for inflation. It might not happen again in your lifetime.

Are you still going to play the UPRO/TMF game? Or are you going to stay with the 500?
Last edited by samsdad on Sat Feb 16, 2019 4:55 pm, edited 2 times in total.
jaj2276
Posts: 581
Joined: Sat Apr 16, 2011 5:13 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by jaj2276 »

staythecourse wrote: Sat Feb 16, 2019 4:17 pm
jaj2276 wrote: Sat Feb 16, 2019 4:12 pm
Time2Quit wrote: Sat Feb 16, 2019 1:05 pm Call me crazy, but I am going to play this game even though I do not need to. I allocated 3 accounts with $30k in each account for the kids. The kids can have a nice little easter egg that they will discover in the will when we are gone.

It might be worth a lot or it might not be worth anything. Time will tell.
I'm hoping to talk my dad in to doing something like this. I need no inheritance from him and would love for him to spend his last dime on his death bed. However he's more frugal than I am and will likely leave a good amount of money that I'm not counting on nor expect to need.

If he could put some of his money in this type of portfolio now, enjoy the ride of watching the portfolio for the next 20 years (he's obsessed with the market), and then have that to pass on to his kid/grandkids, I think that would make him a very happy man. And if it doesn't work out, then I don't think there will be a minute of regret.
Don't think this makes sense. Basically, you said he is simple/ frugal and doesn't need the excess money and any money leftover you don't care too much about. Take into account he watches markets closely and of course his life expectancy is shorter then many on this board. Doesn't sound like he is a good candidate for this plan. If I was your father I would not be interested in this plan. This is likely the VERY same reason most of the folks who are looking at it are not interested as they are older and don't have 20+ years to just leave this money alone without touching it.

Good luck.
Sorry if I wasn't clear. He doesn't need the excess money but I'm sure his grandkids would like it. And since their time horizon is much longer than mine for my pot of money and his for his pot of money, this strategy could REALLY work out well for them.
staythecourse
Posts: 6993
Joined: Mon Jan 03, 2011 8:40 am

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by staythecourse »

jaj2276 wrote: Sat Feb 16, 2019 4:54 pm
staythecourse wrote: Sat Feb 16, 2019 4:17 pm
jaj2276 wrote: Sat Feb 16, 2019 4:12 pm
Time2Quit wrote: Sat Feb 16, 2019 1:05 pm Call me crazy, but I am going to play this game even though I do not need to. I allocated 3 accounts with $30k in each account for the kids. The kids can have a nice little easter egg that they will discover in the will when we are gone.

It might be worth a lot or it might not be worth anything. Time will tell.
I'm hoping to talk my dad in to doing something like this. I need no inheritance from him and would love for him to spend his last dime on his death bed. However he's more frugal than I am and will likely leave a good amount of money that I'm not counting on nor expect to need.

If he could put some of his money in this type of portfolio now, enjoy the ride of watching the portfolio for the next 20 years (he's obsessed with the market), and then have that to pass on to his kid/grandkids, I think that would make him a very happy man. And if it doesn't work out, then I don't think there will be a minute of regret.
Don't think this makes sense. Basically, you said he is simple/ frugal and doesn't need the excess money and any money leftover you don't care too much about. Take into account he watches markets closely and of course his life expectancy is shorter then many on this board. Doesn't sound like he is a good candidate for this plan. If I was your father I would not be interested in this plan. This is likely the VERY same reason most of the folks who are looking at it are not interested as they are older and don't have 20+ years to just leave this money alone without touching it.

Good luck.
Sorry if I wasn't clear. He doesn't need the excess money but I'm sure his grandkids would like it. And since their time horizon is much longer than mine for my pot of money and his for his pot of money, this strategy could REALLY work out well for them.
Sure but they are not the one's taking the risk nor is it their money.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle
jaj2276
Posts: 581
Joined: Sat Apr 16, 2011 5:13 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by jaj2276 »

staythecourse wrote: Sat Feb 16, 2019 6:27 pm ...

Sure but they are not the one's taking the risk nor is it their money.

Good luck.
Not sure where it was stated otherwise.

If my father, their grandfather, would like to leave them a gift that would change their lives and would also bring enjoyment for him while trying to achieve that then I don't see the harm in him trying. If it doesn't succeed, it wasn't their money so they wouldn't be harmed. If it doesn't succeed and he doesn't need the money, then he wouldn't be harmed.

Not sure why you're attempting to make a mountain out of a molehill but to each their own.
staythecourse
Posts: 6993
Joined: Mon Jan 03, 2011 8:40 am

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by staythecourse »

samsdad wrote: Sat Feb 16, 2019 4:50 pm .
I have the latest data!

Image

Just kidding. It's a thought experiment. Here it is: all that you know is that the two lines are going to do this periodically going forward relative to one another. You have no idea where you currently are on the timelines.
I think this is about as accurate as any of the other graphs we have gone through up to this point. My 3 year old drew a similar picture for me the other day. Maybe he was onto something? :D

All kidding aside is each investor has to ask what happens to them if they end up with the returns on the left side of that graph. That will determine if they should play this game to see if they get the right side of the graph. Can't have return without risk of loss of principle.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle
james3547
Posts: 124
Joined: Fri Dec 18, 2015 6:08 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by james3547 »

I have a Roth with $1,500 (I can't backdoor) that would be a slam dunk for this if I didnt have all investments at Vanguard. It is so small I can't talk myself into the hassle of another account. If it was 10k I would do it. Somebody talk me into it!
siriusblack
Posts: 231
Joined: Mon Dec 24, 2018 2:50 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by siriusblack »

Hedgefundie, just curious-- in your backtesting, have you been able to look at the period prior to 1981 (when interest rates on the 10 year treasury were rising) or is that too far back? I was wondering how the strategy would do in that environment (since the rate has been falling since then).
sparksfly
Posts: 106
Joined: Mon Oct 16, 2017 9:57 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by sparksfly »

james3547 wrote: Sat Feb 16, 2019 8:49 pm I have a Roth with $1,500 (I can't backdoor) that would be a slam dunk for this if I didnt have all investments at Vanguard. It is so small I can't talk myself into the hassle of another account. If it was 10k I would do it. Somebody talk me into it!
Not trying to talk you into it but account opening with M1 Finance is literally 5 minutes and they will take care of IRA transfer...no hassle at all. If that is the only thing stopping you, don't let it
james3547
Posts: 124
Joined: Fri Dec 18, 2015 6:08 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by james3547 »

sparksfly wrote: Sat Feb 16, 2019 9:08 pm
james3547 wrote: Sat Feb 16, 2019 8:49 pm I have a Roth with $1,500 (I can't backdoor) that would be a slam dunk for this if I didnt have all investments at Vanguard. It is so small I can't talk myself into the hassle of another account. If it was 10k I would do it. Somebody talk me into it!
Not trying to talk you into it but account opening with M1 Finance is literally 5 minutes and they will take care of IRA transfer...no hassle at all. If that is the only thing stopping you, don't let it
It's just another account to remember, password and what not. For 1.5k it seems not worth the hassle. But I've thought about throwing this Roth in an individual stock and this does seem more fun..
Topic Author
HEDGEFUNDIE
Posts: 4801
Joined: Sun Oct 22, 2017 2:06 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by HEDGEFUNDIE »

siriusblack wrote: Sat Feb 16, 2019 8:51 pm Hedgefundie, just curious-- in your backtesting, have you been able to look at the period prior to 1981 (when interest rates on the 10 year treasury were rising) or is that too far back? I was wondering how the strategy would do in that environment (since the rate has been falling since then).
No backtest data yet, but it also depends on how stocks do. During rising interest rates it turns out that stocks tend to rise:

https://advisors.vanguard.com/VGApp/iip ... PrStkRtrns
sparksfly
Posts: 106
Joined: Mon Oct 16, 2017 9:57 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by sparksfly »

james3547 wrote: Sat Feb 16, 2019 9:19 pm
sparksfly wrote: Sat Feb 16, 2019 9:08 pm
james3547 wrote: Sat Feb 16, 2019 8:49 pm I have a Roth with $1,500 (I can't backdoor) that would be a slam dunk for this if I didnt have all investments at Vanguard. It is so small I can't talk myself into the hassle of another account. If it was 10k I would do it. Somebody talk me into it!
Not trying to talk you into it but account opening with M1 Finance is literally 5 minutes and they will take care of IRA transfer...no hassle at all. If that is the only thing stopping you, don't let it
It's just another account to remember, password and what not. For 1.5k it seems not worth the hassle. But I've thought about throwing this Roth in an individual stock and this does seem more fun..
It's even better if you forget about this account (except once in quarter rebalance). I opened the account 2 days ago and have a reminder setup in 3, 6, 9 and 12 months to login and rebalance...no looking at it everyday.
User avatar
aj76er
Posts: 1179
Joined: Tue Dec 01, 2015 10:34 pm
Location: Austin, TX

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by aj76er »

james3547 wrote: Sat Feb 16, 2019 8:49 pm Somebody talk me into it!
How about about 25% CAGR for the next 30yrs:
$1500×1.25^30 = $1.2mil
:shock:
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle
sabhen
Posts: 360
Joined: Sat Feb 27, 2016 12:03 am

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by sabhen »

Great thread!

I am thinking that a slight variation on the 60/40 (TMF/UPRO) with 20/10/10 (UPRO/TQQQ/CURE) may be a little better in the sense of more diversification and lesser risk with more ETFs.

Furthermore, I am a believer in the secular growth of these two sectors in the next 20 years and therefore I expect a (slightly) better risk-adjusted return.

A robust back-test of this portfolio across various market cycles would not be easy to carry out as CURE was only added in 2011. The limited data available using PV shows it is slightly better in terms of risk-adjusted returns.

QQQ has been around for much longer and used as a proxy for TQQQ. Is it possible to run a backtest with a simulated CURE using 3 x health care ETF?
Topic Author
HEDGEFUNDIE
Posts: 4801
Joined: Sun Oct 22, 2017 2:06 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by HEDGEFUNDIE »

sabhen wrote: Sun Feb 17, 2019 2:27 am Great thread!

I am thinking that a slight variation on the 60/40 (TMF/UPRO) with 20/10/10 (UPRO/TQQQ/CURE) may be a little better in the sense of more diversification and lesser risk with more ETFs.

Furthermore, I am a believer in the secular growth of these two sectors in the next 20 years and therefore I expect a (slightly) better risk-adjusted return.

A robust back-test of this portfolio across various market cycles would not be easy to carry out as CURE was only added in 2011. The limited data available using PV shows it is slightly better in terms of risk-adjusted returns.

QQQ has been around for much longer and used as a proxy for TQQQ. Is it possible to run a backtest with a simulated CURE using 3 x health care ETF?
Here is TQQQ subbed in for UPRO:

https://www.portfoliovisualizer.com/bac ... on4_2=-200

Higher growth at the cost of much higher drawdown risk.
finvestor
Posts: 36
Joined: Thu Apr 20, 2017 1:22 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by finvestor »

EfficientInvestor wrote: Sat Feb 16, 2019 9:12 am
finvestor wrote: Sat Feb 16, 2019 7:17 am
UKFred wrote: Sat Feb 16, 2019 1:35 am
finvestor wrote: Fri Feb 15, 2019 6:06 am Has anyone implemented (or considered implementing) this strategy in Europe? If so, which ETFs are you using? These days most europeans do not have access to US domiciled ETFs, so I was wondering if anyone knows good Europe domiciled ETFs to implement this strategy?
I am implementing this with 3UKL (leveraged FTSE 100) and 3GIL (leveraged gilts). I've run some basic tests over 1, 2 and 3 years (especially interested in the two sell-offs in 2018) and the strategy seems to work similar to the US ETFs. Of course these are in Sterling, not Euros.
Thanks for the input. I spent some time on Google and found these 2X leveraged ETFs listed in the German exchange:

Stocks: Xtrackers S&P 500 2x Leveraged Daily Swap UCITS ETF (ISIN LU0411078552)
Bonds: Lyxor Bund Daily (2x) Leveraged UCITS ETF (ISIN FR0011023654)

Any comments on such a combination to implement this strategy in Europe? The German long-term bonds are, I suppose, the classic "flight to safety" assets, so one might expect them to provide some protection when the broad stock market crashes?
WisdomTree has some leveraged products for Europe. 3USL is their 3X S&P500 fund and 3TYL is their 3X US 10 year treasury fund. Both are traded on the London exchange. 3USL has $20MM AUM, but 3TYL only has $900k AUM. Both funds seem to underperform UPRO and TYD, but not so much that it’s a deal killer.
Thanks -- Ι would very much prefer to stick with ETFs listed in Germany, with the looming Brexit, and due to the fact that my current broker does not offer access to the London exchange.

Meanwhile, I found also this 2x ETF (in case someone is interested): https://www.amundietf.fr/professional/p ... 0010755611

By the way, given the current bond yields, I'm somewhat temped to forget about risk parity and just enjoy of the cheap leverage while it lasts, by picking only one of the 2x equity ETFs, and forgetting about the treasury part... :)
sabhen
Posts: 360
Joined: Sat Feb 27, 2016 12:03 am

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by sabhen »

Post by HEDGEFUNDIE » Sun Feb 17, 2019 4:58 am

sabhen wrote: ↑Sun Feb 17, 2019 12:27 am
Great thread!

I am thinking that a slight variation on the 60/40 (TMF/UPRO) with 20/10/10 (UPRO/TQQQ/CURE) may be a little better in the sense of more diversification and lesser risk with more ETFs.

Furthermore, I am a believer in the secular growth of these two sectors in the next 20 years and therefore I expect a (slightly) better risk-adjusted return.

A robust back-test of this portfolio across various market cycles would not be easy to carry out as CURE was only added in 2011. The limited data available using PV shows it is slightly better in terms of risk-adjusted returns.

QQQ has been around for much longer and used as a proxy for TQQQ. Is it possible to run a backtest with a simulated CURE using 3 x health care ETF?
Here is TQQQ subbed in for UPRO:

https://www.portfoliovisualizer.com/bac ... on4_2=-200

Higher growth at the cost of much higher drawdown risk.
The idea is to split the levered equity portion with half in SP500, and a quarter each for QQQ and XLV (used as a proxy for CURE).

Better risk-adjusted return with less drawdown.
Last edited by sabhen on Sun Feb 17, 2019 11:15 am, edited 1 time in total.
User avatar
Justin618
Posts: 211
Joined: Fri Mar 02, 2007 9:37 am
Location: accumulation phase

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by Justin618 »

Can you speak a little further about the construction or your portfolio (40/60 UPRO/TMF)?

I've read this thread a lot of outside resources. Bridgewater's All Weather portfolio seems to have a lot more asset classes. They're looking for a portfolio that will perform well in all economic cycles and they principally look at two macro-economic factors: real growth and inflation. This sets up a 2x2 matrix of:

Growth rising, Inflation rising
Growth rising, Inflation falling
Growth falling, Inflation rising
Growth falling, Inflation falling

They seek returns in each period and based on what performs well in each of the above 4 period they have synthesized a model risk parity portfolio. Accordingly, I believe their model portfolio looks something like this:
58% fixed income
12% Commodities
11% Real Estate
10% US equity
9% Non-US equity

And from there, they just add leverage. You've given this a lot of thought, and I'm sure you considered more asset classes. Can you talk about why some asset classes are not included in your portfolio? Is it just a matter of available ETF products? Backtesting? Ease of administration? Correlations converging during draw downs?

I'm considering giving this a try for a small chunk of my portfolio, but wondering why you just stopped at two asset classes. Justin
"Investing is simple, but not easy" - Buffett.
samsdad
Posts: 758
Joined: Sat Jan 02, 2016 5:20 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by samsdad »

Some light reading by Callan regarding whether LTT can be depended on to rally when stocks fall:
https://www.callan.com/wp-content/uploa ... -Hedge.pdf
Topic Author
HEDGEFUNDIE
Posts: 4801
Joined: Sun Oct 22, 2017 2:06 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by HEDGEFUNDIE »

Justin618 wrote: Sun Feb 17, 2019 10:48 am Can you speak a little further about the construction or your portfolio (40/60 UPRO/TMF)?

I've read this thread a lot of outside resources. Bridgewater's All Weather portfolio seems to have a lot more asset classes. They're looking for a portfolio that will perform well in all economic cycles and they principally look at two macro-economic factors: real growth and inflation. This sets up a 2x2 matrix of:

Growth rising, Inflation rising
Growth rising, Inflation falling
Growth falling, Inflation rising
Growth falling, Inflation falling

They seek returns in each period and based on what performs well in each of the above 4 period they have synthesized a model risk parity portfolio. Accordingly, I believe their model portfolio looks something like this:
58% fixed income
12% Commodities
11% Real Estate
10% US equity
9% Non-US equity

And from there, they just add leverage. You've given this a lot of thought, and I'm sure you considered more asset classes. Can you talk about why some asset classes are not included in your portfolio? Is it just a matter of available ETF products? Backtesting? Ease of administration? Correlations converging during draw downs?

I'm considering giving this a try for a small chunk of my portfolio, but wondering why you just stopped at two asset classes. Justin
The short answer is, I don't believe we will ever again face an inflationary environment where we will need to rely on gold/commodities/real estate for return instead of stocks.

Since 1982, after Volcker's interest rate shock, inflation has averaged 2.7%/year. Holding 23% of your portfolio in commodities and real estate to fight something that will (in my opinion) never come again is just a drag on your portfolio with no purpose.

Vineviz has heavily shaped my thinking on this. I'd suggest reading: viewtopic.php?t=260386#p4150162
Kbg
Posts: 355
Joined: Thu Mar 23, 2017 11:33 am

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by Kbg »

Add some UGLD...really, it will help.
Topic Author
HEDGEFUNDIE
Posts: 4801
Joined: Sun Oct 22, 2017 2:06 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by HEDGEFUNDIE »

Kbg wrote: Sun Feb 17, 2019 3:04 pm Add some UGLD...really, it will help.
Nope.

https://www.portfoliovisualizer.com/bac ... tion4_2=30
MotoTrojan
Posts: 11259
Joined: Wed Feb 01, 2017 7:39 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MotoTrojan »

Tempted to join you all with the remaining $3K of my 2019 Roth contribution.
MotoTrojan
Posts: 11259
Joined: Wed Feb 01, 2017 7:39 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MotoTrojan »

Any books anyone recommends on risk parity, leverage, or similar strategies? Been looking for a new finance related book and would make dipping my toes in with this strategy more appealing.
jaj2276
Posts: 581
Joined: Sat Apr 16, 2011 5:13 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by jaj2276 »

Kbg wrote: Sun Feb 17, 2019 3:04 pm Add some UGLD...really, it will help.
As OP replied, it doesn't show up in the numbers. And really you would need to hold way more gold than you might imagine to save your portfolio in the high inflationary environment (assuming negative returns for both bonds and stocks). And if the high inflationary environment doesn't hit, that much UGLD would totally neuter the strategy returns.

This coming from a guy who owns gold/silver (paper+physical) in his AA as a bit of insurance.
User avatar
Justin618
Posts: 211
Joined: Fri Mar 02, 2007 9:37 am
Location: accumulation phase

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by Justin618 »

I tend to agree on commodities - I never liked an asset that didn't produce income. But, what about international equities? I can see on a backtest it would've hurt, but who's to say going forward. Your portfolio selection seems a little too backtest reliant.

Generally, I think the risk parity approach has merit and leveraged ETFs are seemingly workable, but I feel you/we should reexamine the portfolio components for a forward-looking approach. I'm more inclined to lean towards ITT and adding some international and REIT exposure.

Forgive me if I'm wrong, but is it not right to think of this as a normal portfolio, albeit w/ 3x leverage? IF I wouldn't use LTT over ITT in my unlevered portfolio, is there a reason to do so here? After achieving risk parity, should leverage impact the portfolio components? Justin
"Investing is simple, but not easy" - Buffett.
MotoTrojan
Posts: 11259
Joined: Wed Feb 01, 2017 7:39 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MotoTrojan »

sabhen wrote: Sun Feb 17, 2019 10:12 am
Post by HEDGEFUNDIE » Sun Feb 17, 2019 4:58 am

sabhen wrote: ↑Sun Feb 17, 2019 12:27 am
Great thread!

I am thinking that a slight variation on the 60/40 (TMF/UPRO) with 20/10/10 (UPRO/TQQQ/CURE) may be a little better in the sense of more diversification and lesser risk with more ETFs.

Furthermore, I am a believer in the secular growth of these two sectors in the next 20 years and therefore I expect a (slightly) better risk-adjusted return.

A robust back-test of this portfolio across various market cycles would not be easy to carry out as CURE was only added in 2011. The limited data available using PV shows it is slightly better in terms of risk-adjusted returns.

QQQ has been around for much longer and used as a proxy for TQQQ. Is it possible to run a backtest with a simulated CURE using 3 x health care ETF?
Here is TQQQ subbed in for UPRO:

https://www.portfoliovisualizer.com/bac ... on4_2=-200

Higher growth at the cost of much higher drawdown risk.
The idea is to split the levered equity portion with half in SP500, and a quarter each for QQQ and XLV (used as a proxy for CURE).

Better risk-adjusted return with less drawdown.
I don't know enough about health-care but using this PF methodology it appears 60/30/10 TMF/UPRO/TQQQ has better return than the original 60/40 with lower drawdown; 60/20/20 moved the drawdown needle in the other direction.

I am about to implement the 60/30/10 at 3% of my portfolio (but <10% of annual contribution).

May compliment this fun with this book unless anyone else has any suggestions:
https://www.amazon.com/Risk-Parity-Fund ... 1498738796
User avatar
Nickel & Dime
Posts: 50
Joined: Sun Sep 30, 2018 3:09 am

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by Nickel & Dime »

Curious if everyone is lump sum investing with their 3x portfolios? Is anyone planning on dollar cost averaging/rebalancing with new money? It seems like adding new money would work well with all of the volatility happening.
I started a small 50/50 upro/tmf just for fun. It is .09 % of my total portfolio, lol.
SVT
Posts: 387
Joined: Mon Oct 13, 2008 8:56 am

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by SVT »

Nickel & Dime wrote: Sun Feb 17, 2019 6:30 pm Curious if everyone is lump sum investing with their 3x portfolios? Is anyone planning on dollar cost averaging/rebalancing with new money? It seems like adding new money would work well with all of the volatility happening.
I started a small 50/50 upro/tmf just for fun. It is .09 % of my total portfolio, lol.
I'm doing a lump sum investment with my entire $80k Roth IRA. My income is too high for anymore direct Roth contributions and I can't do backdoor Roth because I have a current SEP IRA with my FT job. So no new contributions for me for the foreseeable future. I could also invest in this in another account, of course, but I don't plan on doing that.
klw084
Posts: 15
Joined: Thu Jun 19, 2014 7:42 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by klw084 »

In 2015 one of the very few posts on this forum I ever made proposed a similar strategy (pairing a highly leveraged ETF with treasuries in a variation of the Larry portfolio) and it was not well received by this forum to say the least.

In fact, one person even said something along the lines of, "if you don't know who the pigeon is at the table, it's you".

Anyway, I did put this strategy into effect in my 401k shortly after my post. It's done extremely well to say the least these last few years.

The only reason I am posting now is to say that people should keep an open mind to all new investing strategies. After all, when John Bogle came up with the idea of index funds in the first place, the common wisdom at the time was that it was a pretty stupid idea and yet it was an idea that had some logic underlying it as to why it might work.

Hedgefundie's idea has some definite logic underlying it and has not only been backtested with good result but, at least in my case, has been prospectively put into place by a member of this forum as well with good result.
Topic Author
HEDGEFUNDIE
Posts: 4801
Joined: Sun Oct 22, 2017 2:06 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by HEDGEFUNDIE »

Justin618 wrote: Sun Feb 17, 2019 6:03 pm I tend to agree on commodities - I never liked an asset that didn't produce income. But, what about international equities? I can see on a backtest it would've hurt, but who's to say going forward. Your portfolio selection seems a little too backtest reliant.

Generally, I think the risk parity approach has merit and leveraged ETFs are seemingly workable, but I feel you/we should reexamine the portfolio components for a forward-looking approach. I'm more inclined to lean towards ITT and adding some international and REIT exposure.

Forgive me if I'm wrong, but is it not right to think of this as a normal portfolio, albeit w/ 3x leverage? IF I wouldn't use LTT over ITT in my unlevered portfolio, is there a reason to do so here? After achieving risk parity, should leverage impact the portfolio components? Justin
Here’s the thing, I agree with you that if it’s something I would hold in my unleveraged portfolio, then it’s something I should also hold in my leveraged portfolio, EXCEPT that in a 3x leveraged portfolio, asset volatility matters a whole lot. Which is why I wouldn’t hold EM, the risk of the 3x EM fund crashing to zero is just too high. I backtested DM a few pages back and while it was not much more volatile than the S&P, it also did not help with the drawdowns; over the past 10 years DM has become highly correlated with US. But I wouldn’t argue with anyone who wanted to hold both UPRO and DZK.

As far as bonds, the long aspect of the long Treasuries is kind of the whole point. During equity crashes, the longer the bond duration the more it goes up. Which is why this strategy works so well with LTT and less well with ITT.

In my unleveraged portfolio my only bond holding is EDV for much the same reason.
Last edited by HEDGEFUNDIE on Sun Feb 17, 2019 7:12 pm, edited 3 times in total.
Topic Author
HEDGEFUNDIE
Posts: 4801
Joined: Sun Oct 22, 2017 2:06 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by HEDGEFUNDIE »

klw084 wrote: Sun Feb 17, 2019 6:40 pm In 2015 one of the very few posts on this forum I ever made proposed a similar strategy (pairing a highly leveraged ETF with treasuries in a variation of the Larry portfolio) and it was not well received by this forum to say the least.

In fact, one person even said something along the lines of, "if you don't know who the pigeon is at the table, it's you".

Anyway, I did put this strategy into effect in my 401k shortly after my post. It's done extremely well to say the least these last few years.

The only reason I am posting now is to say that people should keep an open mind to all new investing strategies. After all, when John Bogle came up with the idea of index funds in the first place, the common wisdom at the time was that it was a pretty stupid idea and yet it was an idea that had some logic underlying it as to why it might work.

Hedgefundie's idea has some definite logic underlying it and has not only been backtested with good result but, at least in my case, has been prospectively put into place by a member of this forum as well with good result.
👏🏻

Let this thread be the refuge for all of us Boglehead misfits! As was mentioned a few pages back, who cares what the three-funders think, our account balances will be our edification!
staythecourse
Posts: 6993
Joined: Mon Jan 03, 2011 8:40 am

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by staythecourse »

Nickel & Dime wrote: Sun Feb 17, 2019 6:30 pm Curious if everyone is lump sum investing with their 3x portfolios? Is anyone planning on dollar cost averaging/rebalancing with new money? It seems like adding new money would work well with all of the volatility happening.
I started a small 50/50 upro/tmf just for fun. It is .09 % of my total portfolio, lol.
Like all these type of questions it ALL matters how much the principle is vs. the yearly contributions. If the ratio is HIGH then no it won't make much of a difference. Ask the folks with high liquid net worth. The value fluctuates more with the inherent movement of their asset allocation then how much they contribute each year and "buying the laggards". Then throw in the principle is being multiplied by 3 each day and your contributions are not.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle
User avatar
Nickel & Dime
Posts: 50
Joined: Sun Sep 30, 2018 3:09 am

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by Nickel & Dime »

staythecourse wrote: Sun Feb 17, 2019 7:21 pm
Nickel & Dime wrote: Sun Feb 17, 2019 6:30 pm Curious if everyone is lump sum investing with their 3x portfolios? Is anyone planning on dollar cost averaging/rebalancing with new money? It seems like adding new money would work well with all of the volatility happening.
I started a small 50/50 upro/tmf just for fun. It is .09 % of my total portfolio, lol.
Like all these type of questions it ALL matters how much the principle is vs. the yearly contributions. If the ratio is HIGH then no it won't make much of a difference. Ask the folks with high liquid net worth. The value fluctuates more with the inherent movement of their asset allocation then how much they contribute each year and "buying the laggards". Then throw in the principle is being multiplied by 3 each day and your contributions are not.

Good luck.
Good point. I do always invest when I have the money ASAP, lump-summing the max allowable into my ira’s at the beginning of every year.
I am somewhat reluctant putting 20k plus into something with extremely high risk (“if it’s too good to be true, it probably is” is lurking in the back of my head). So just thinking that 3x leverage-shy folks like me, who might have a lower risk tolerance,might do better with dca...
dave_k
Posts: 406
Joined: Sat Dec 26, 2015 7:25 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by dave_k »

I'm considering doing this with some of the money in our Roth and regular IRAs (would probably do all Roth, but there's not enough in it), totaling around 5% of investable assets. Both are at Fidelity, so we'll just do it there.

I've been thinking about strategies for taking money out, and even for putting more in if it drops early on. We're in our late 40s, and will likely retire early, so letting it all ride 20+ years or until it goes to 100x doesn't make as much sense for us, and a bad sequence of returns early on would more seriously impact it's likelihood to be worth a lot before we're fairly old.

For taking money out, I'm thinking about something like an annual withdrawal of 5% of anything over 5x the starting amount. That strikes a balance between letting it compound significantly before withdrawing, and generating "income" earlier. There could also be another tier, like 10% of anything over 20x. A strategy like this could be customized based on the time horizon and goals. (In this case withdrawal means moving to our normal AA).

To mitigate poor performance early on, I'm thinking about something like an annual contribution of 20% of the difference below the starting amount, with an overall maximum of an additional 50%. In some basic simulations I've run it tends to more than pay off to do this, and significantly helps recovery in cases of early losses (it's less likely to be triggered for losses later on, because they tend to start from a higher base). To do this you would have to be willing to contribute more than the original amount, but it doesn't amount to much if it's a small fraction of the portfolio to begin with, and most people doing this will be in the accumulation phase with new money to contribute anyway. An alternative to this would be to plan to contribute some additional amount each year for a number of years regardless of performance.

The withdrawal and contribution strategies seem like market timing, but they also resemble rebalancing (with the overall portfolio) within limits, and I think they could make it work better for someone willing to take the risk with a somewhat shorter time horizon. I'd be interested to hear alternative strategies, or reasons why this is or isn't a good idea.
sabhen
Posts: 360
Joined: Sat Feb 27, 2016 12:03 am

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by sabhen »

MotoTrojan wrote: Sun Feb 17, 2019 6:06 pm
sabhen wrote: Sun Feb 17, 2019 10:12 am
Post by HEDGEFUNDIE » Sun Feb 17, 2019 4:58 am

sabhen wrote: ↑Sun Feb 17, 2019 12:27 am
Great thread!

I am thinking that a slight variation on the 60/40 (TMF/UPRO) with 20/10/10 (UPRO/TQQQ/CURE) may be a little better in the sense of more diversification and lesser risk with more ETFs.

Furthermore, I am a believer in the secular growth of these two sectors in the next 20 years and therefore I expect a (slightly) better risk-adjusted return.

A robust back-test of this portfolio across various market cycles would not be easy to carry out as CURE was only added in 2011. The limited data available using PV shows it is slightly better in terms of risk-adjusted returns.

QQQ has been around for much longer and used as a proxy for TQQQ. Is it possible to run a backtest with a simulated CURE using 3 x health care ETF?
Here is TQQQ subbed in for UPRO:

https://www.portfoliovisualizer.com/bac ... on4_2=-200

Higher growth at the cost of much higher drawdown risk.
The idea is to split the levered equity portion with half in SP500, and a quarter each for QQQ and XLV (used as a proxy for CURE).

Better risk-adjusted return with less drawdown.
I don't know enough about health-care but using this PF methodology it appears 60/30/10 TMF/UPRO/TQQQ has a better return than the original 60/40 with lower drawdown; 60/20/20 moved the drawdown needle in the other direction.

I am about to implement the 60/30/10 at 3% of my portfolio (but <10% of annual contribution).

May compliment this fun with this book unless anyone else has any suggestions:
https://www.amazon.com/Risk-Parity-Fund ... 1498738796
Portfolio 60/20/10/10 with TMF/UPRO/TQQQ/CURE improves the Sharpe Ratio to 0.73 from 0.70 (60/40 TMF/UPRO) per PV.

The 60/30/10 TMF/UPRO/TQQQ has a Sharpe Ratio of 0.71.
MotoTrojan
Posts: 11259
Joined: Wed Feb 01, 2017 7:39 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MotoTrojan »

sabhen wrote: Mon Feb 18, 2019 6:46 am
MotoTrojan wrote: Sun Feb 17, 2019 6:06 pm
sabhen wrote: Sun Feb 17, 2019 10:12 am
Post by HEDGEFUNDIE » Sun Feb 17, 2019 4:58 am

sabhen wrote: ↑Sun Feb 17, 2019 12:27 am
Great thread!

I am thinking that a slight variation on the 60/40 (TMF/UPRO) with 20/10/10 (UPRO/TQQQ/CURE) may be a little better in the sense of more diversification and lesser risk with more ETFs.

Furthermore, I am a believer in the secular growth of these two sectors in the next 20 years and therefore I expect a (slightly) better risk-adjusted return.

A robust back-test of this portfolio across various market cycles would not be easy to carry out as CURE was only added in 2011. The limited data available using PV shows it is slightly better in terms of risk-adjusted returns.

QQQ has been around for much longer and used as a proxy for TQQQ. Is it possible to run a backtest with a simulated CURE using 3 x health care ETF?
Here is TQQQ subbed in for UPRO:

https://www.portfoliovisualizer.com/bac ... on4_2=-200

Higher growth at the cost of much higher drawdown risk.
The idea is to split the levered equity portion with half in SP500, and a quarter each for QQQ and XLV (used as a proxy for CURE).

Better risk-adjusted return with less drawdown.
I don't know enough about health-care but using this PF methodology it appears 60/30/10 TMF/UPRO/TQQQ has a better return than the original 60/40 with lower drawdown; 60/20/20 moved the drawdown needle in the other direction.

I am about to implement the 60/30/10 at 3% of my portfolio (but <10% of annual contribution).

May compliment this fun with this book unless anyone else has any suggestions:
https://www.amazon.com/Risk-Parity-Fund ... 1498738796
Portfolio 60/20/10/10 with TMF/UPRO/TQQQ/CURE improves the Sharpe Ratio to 0.73 from 0.70 (60/40 TMF/UPRO) per PV.

The 60/30/10 TMF/UPRO/TQQQ has a Sharpe Ratio of 0.71.
Thanks. Also looking at adding some developed international but struggling to find a good fund that’s been around long enough. DZK would be the actual leveraged varient.

Now thinking I’ll roll $15K of Roth into 60/20/10/10 TMF/UPRO/TQQQ/DZK.
MotoTrojan
Posts: 11259
Joined: Wed Feb 01, 2017 7:39 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MotoTrojan »

Slightly related topic, I’ve been blown away so far with the ease of setup and customer service (even over the weekend) of M1 finance.
PluckyDucky
Posts: 346
Joined: Tue Jan 15, 2019 7:29 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by PluckyDucky »

MotoTrojan wrote: Mon Feb 18, 2019 9:16 am ...
Thanks. Also looking at adding some developed international but struggling to find a good fund that’s been around long enough. DZK would be the actual leveraged varient.

Now thinking I’ll roll $15K of Roth into 60/20/10/10 TMF/UPRO/TQQQ/DZK.
Attempting to over-optimize could be a fruitless endeavor.

I understand using SPXL + UPRO to try to split up the fund closure or counterparty risk.

I'm keeping mine simple.
staythecourse
Posts: 6993
Joined: Mon Jan 03, 2011 8:40 am

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by staythecourse »

MotoTrojan wrote: Mon Feb 18, 2019 9:17 am Slightly related topic, I’ve been blown away so far with the ease of setup and customer service (even over the weekend) of M1 finance.
That is great to hear. I was going to use them, but think I will use fidelity instead. Trades are $5 so maybe $40/ year (first 2 year trades free though with current promotion).

I just don't know about using a company that seems to have only 100million in AUM (wikipedia). It does have the usual insurance coverage up to 500k, but just don't know about the stewardship. I started a profile there, but am hesitant about potential stewardship issues over a long time horizon. If this plan is set up for 20 years (for me more like 50+ as it is going to my kids) what are the chances something goes wrong with M1 vs. fidelity for a difference of a lousy $40/ year in transaction costs?

Anyone else concerned about this as well or just me?

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle
PluckyDucky
Posts: 346
Joined: Tue Jan 15, 2019 7:29 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by PluckyDucky »

staythecourse wrote: Mon Feb 18, 2019 9:43 am
MotoTrojan wrote: Mon Feb 18, 2019 9:17 am Slightly related topic, I’ve been blown away so far with the ease of setup and customer service (even over the weekend) of M1 finance.
That is great to hear. I was going to use them, but think I will use fidelity instead. Trades are $5 so maybe $40/ year (first 2 year trades free though with current promotion).

I just don't know about using a company that seems to have only 100million in AUM (wikipedia). It does have the usual insurance coverage up to 500k, but just don't know about the stewardship. I started a profile there, but am hesitant about potential stewardship issues over a long time horizon. If this plan is set up for 20 years (for me more like 50+ as it is going to my kids) what are the chances something goes wrong with M1 vs. fidelity for a difference of a lousy $40/ year in transaction costs?

Anyone else concerned about this as well or just me?

Good luck.
M1Finance seems to have a good product. I think it is more likely they will get bought like ThinkorSwim was barring any sort of massive failure.
staythecourse
Posts: 6993
Joined: Mon Jan 03, 2011 8:40 am

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by staythecourse »

PluckyDucky wrote: Mon Feb 18, 2019 9:38 am I understand using SPXL + UPRO to try to split up the fund closure or counterparty risk.
I thought about this as well as another poster brought this up. I decided not to do it. SPXL is the same fund company that does TMF so that would be same issue if it is the fund company issue. IF it is 3x leverage issue then all 3 etf would suffer. If it is a 3x SP500 issue then both SPXL and UPRO would have the same issue. So doesn't seem like any additional benefit in the end?

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle
jaj2276
Posts: 581
Joined: Sat Apr 16, 2011 5:13 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by jaj2276 »

staythecourse wrote: Mon Feb 18, 2019 9:43 am
MotoTrojan wrote: Mon Feb 18, 2019 9:17 am Slightly related topic, I’ve been blown away so far with the ease of setup and customer service (even over the weekend) of M1 finance.
That is great to hear. I was going to use them, but think I will use fidelity instead. Trades are $5 so maybe $40/ year (first 2 year trades free though with current promotion).

I just don't know about using a company that seems to have only 100million in AUM (wikipedia). It does have the usual insurance coverage up to 500k, but just don't know about the stewardship. I started a profile there, but am hesitant about potential stewardship issues over a long time horizon. If this plan is set up for 20 years (for me more like 50+ as it is going to my kids) what are the chances something goes wrong with M1 vs. fidelity for a difference of a lousy $40/ year in transaction costs?

Anyone else concerned about this as well or just me?

Good luck.
It's my #1 concern with M1 Finance. If my account balance grows to close to $500k (that would be a win right there!) then I'll reassess. Honestly if OP hadn't mentioned M1 Finance, I hadn't heard of them before and definitely wouldn't have moved any money over to them. As mentioned earlier, I'm not in love with their intuitive interface but the transfer process was a piece of cake (I did nothing other than send them my Vanguard statement). I doubt that will scale much so if M1 Finance does become popular than I imagine that piece will likely suffer. In like Flynn.
staythecourse
Posts: 6993
Joined: Mon Jan 03, 2011 8:40 am

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by staythecourse »

jaj2276 wrote: Mon Feb 18, 2019 10:27 am
staythecourse wrote: Mon Feb 18, 2019 9:43 am
MotoTrojan wrote: Mon Feb 18, 2019 9:17 am Slightly related topic, I’ve been blown away so far with the ease of setup and customer service (even over the weekend) of M1 finance.
That is great to hear. I was going to use them, but think I will use fidelity instead. Trades are $5 so maybe $40/ year (first 2 year trades free though with current promotion).

I just don't know about using a company that seems to have only 100million in AUM (wikipedia). It does have the usual insurance coverage up to 500k, but just don't know about the stewardship. I started a profile there, but am hesitant about potential stewardship issues over a long time horizon. If this plan is set up for 20 years (for me more like 50+ as it is going to my kids) what are the chances something goes wrong with M1 vs. fidelity for a difference of a lousy $40/ year in transaction costs?

Anyone else concerned about this as well or just me?

Good luck.
It's my #1 concern with M1 Finance. If my account balance grows to close to $500k (that would be a win right there!) then I'll reassess. Honestly if OP hadn't mentioned M1 Finance, I hadn't heard of them before and definitely wouldn't have moved any money over to them. As mentioned earlier, I'm not in love with their intuitive interface but the transfer process was a piece of cake (I did nothing other than send them my Vanguard statement). I doubt that will scale much so if M1 Finance does become popular than I imagine that piece will likely suffer. In like Flynn.
I love the concept, but since I am looking for a set and forget outside of quarterly rebalancing I didn't want the anxiety of turning on the news and finding out the CEO walked off with all the money and then had to wait for the insurance stuff to give me my money back which I am sure takes time. Also, didn't want to have to pay attention to the 500k limit to reconsider moving it. Also, I HATED the interface. That might just be me being IT impaired.

It seems like a great product and service and hope for the best.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle
Locked