Cheap Long-Term Leverage for International Stocks

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tainted-meat
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Cheap Long-Term Leverage for International Stocks

Post by tainted-meat » Tue Aug 13, 2019 7:58 pm

Are there cheap long-term loans that could be used to invest in International Stocks? I'd like to take advantage of long-term interest rates to lever up on stock investments. The idea would be similar to leveraging mortgages on rental properties, only I'd like to use this for stocks. International, especially emerging stocks have not had the run-up of US stocks so this is very appealing to me. I think the strong dollar could also juice long-term returns.

typical.investor
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Re: Cheap Long-Term Leverage for International Stocks

Post by typical.investor » Tue Aug 13, 2019 8:27 pm

tainted-meat wrote:
Tue Aug 13, 2019 7:58 pm
Are there cheap long-term loans that could be used to invest in International Stocks? I'd like to take advantage of long-term interest rates to lever up on stock investments.
Do you mean a loan in USD?
tainted-meat wrote:
Tue Aug 13, 2019 7:58 pm
The idea would be similar to leveraging mortgages on rental properties, only I'd like to use this for stocks. International, especially emerging stocks have not had the run-up of US stocks so this is very appealing to me.
I use Direxion 3X leveraged funds --DZK (developed markets) and EDC (MSCI emerging). I figure they can get a better rate than I can.

DZK return is -11.66% in my holding period and EDC is -30.25%. I balance them off with TMF which is up 48.74%.

You can see the HEDGEFUNDIES excellent adventure thread for discussion on the strategy. Most stick to US stocks I think as volatility especially for emerging is an issue. Some suggest going short the inverse fund (for international especially emerging) to take better advantage of the volatility, but I that's too complicated for me.
tainted-meat wrote:
Tue Aug 13, 2019 7:58 pm
I think the strong dollar could also juice long-term returns.
So you expect the dollar to weaken and boost foreign returns?

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whodidntante
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Re: Cheap Long-Term Leverage for International Stocks

Post by whodidntante » Tue Aug 13, 2019 8:34 pm

There are cheap long-term loans. IB will loan you Yen or Euros at 1.5% OR LESS. The loan does not amortize, so you can die with it if you like, so long as you maintain maintenance margin every day.

Cheap long-term fixed-rate loans is a tougher hurdle. I don't know of anything better than a cash out refi on a house. And car loans are still really cheap, if you consider 5-7 years long term (I don't).

Valuethinker
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Re: Cheap Long-Term Leverage for International Stocks

Post by Valuethinker » Wed Aug 14, 2019 5:36 am

tainted-meat wrote:
Tue Aug 13, 2019 7:58 pm
Are there cheap long-term loans that could be used to invest in International Stocks? I'd like to take advantage of long-term interest rates to lever up on stock investments. The idea would be similar to leveraging mortgages on rental properties, only I'd like to use this for stocks. International, especially emerging stocks have not had the run-up of US stocks so this is very appealing to me. I think the strong dollar could also juice long-term returns.
A margin investor (like an investor in CFDs or spread betting) is essentially short volatility, with the broker taking the other side.

In other words you can be right in the long run, but it won't matter because a sufficiently large move downwards in the interim cashes you out and leaves you without capital.

There's a reason those spread betting firms are highly profitable. You can bet on stock indices all you want, but they have more resources than you do and a greater ability to lay off risk. Thus they advertise heavily for new clients (here it's at football games, ie soccer) who tend to be young and male professionals.

You can leverage against your home or other rental property. That money can't be called - there's no covenant test on the value of your own home for example. That's really the only long term finance you can get.

The important thing is that you can't be called, so the volatility problem is not an issue (it's still an issue if your long term forecast is wrong, of course, because you have to repay the mortgage).

columbia
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Re: Cheap Long-Term Leverage for International Stocks

Post by columbia » Wed Aug 14, 2019 5:57 am

tainted-meat wrote:
Tue Aug 13, 2019 7:58 pm
Are there cheap long-term loans that could be used to invest in International Stocks? I'd like to take advantage of long-term interest rates to lever up on stock investments. The idea would be similar to leveraging mortgages on rental properties, only I'd like to use this for stocks. International, especially emerging stocks have not had the run-up of US stocks so this is very appealing to me. I think the strong dollar could also juice long-term returns.

With leverage, if your prediction is wrong, it’s really wrong.

longinvest
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Re: Cheap Long-Term Leverage for International Stocks

Post by longinvest » Wed Aug 14, 2019 6:51 am

Valuethinker wrote:
Wed Aug 14, 2019 5:36 am
You can leverage against your home or other rental property. That money can't be called - there's no covenant test on the value of your own home for example. That's really the only long term finance you can get.
It's a common mistake to think that taking a mortgage against one's home provides leverage for one's portfolio. It doesn't. The mortgage is against the home. Here's a link to an older post explaining this: On Leverage. Interested readers can read my earlier posts in that same thread providing more context for the post.
longinvest wrote:
Wed Feb 27, 2019 5:21 pm
...
But, the leverage isn't against his salary, nor against his portfolio, but against his house. That's why the bank is loaning him money for such a long term at such a low rate. As long as Investor 1 keeps a mortgage (including a home equity line of credit, HELOC), he is exposed to foreclosure. By paying his mortgage, Investor 1 isn't reducing the risk of losing his portfolio but the risk of losing his house.
...
It isn't mental accounting to consider that the collateral that was provided to get the loan is the subject of the leverage.
Bogleheads investment philosophy | single-ETF balanced portfolio | VBAL

Valuethinker
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Re: Cheap Long-Term Leverage for International Stocks

Post by Valuethinker » Wed Aug 14, 2019 8:34 am

longinvest wrote:
Wed Aug 14, 2019 6:51 am
Valuethinker wrote:
Wed Aug 14, 2019 5:36 am
You can leverage against your home or other rental property. That money can't be called - there's no covenant test on the value of your own home for example. That's really the only long term finance you can get.
It's a common mistake to think that taking a mortgage against one's home provides leverage for one's portfolio. It doesn't. The mortgage is against the home. Here's a link to an older post explaining this: On Leverage. Interested readers can read my earlier posts in that same thread providing more context for the post.
longinvest wrote:
Wed Feb 27, 2019 5:21 pm
...
But, the leverage isn't against his salary, nor against his portfolio, but against his house. That's why the bank is loaning him money for such a long term at such a low rate. As long as Investor 1 keeps a mortgage (including a home equity line of credit, HELOC), he is exposed to foreclosure. By paying his mortgage, Investor 1 isn't reducing the risk of losing his portfolio but the risk of losing his house.
...
It isn't mental accounting to consider that the collateral that was provided to get the loan is the subject of the leverage.
I don't think I ruled out what you are saying with what I said?

Agreed. The whole point of a home mortgage is that it is usually backed up by labour income - your take home pay.

But it's independent of the market volatility of the stock market (or the bitcoin market, etc.). That's what makes it different from buying stocks on a margin account.

Valuethinker
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Re: Cheap Long-Term Leverage for International Stocks

Post by Valuethinker » Wed Aug 14, 2019 8:37 am

longinvest wrote:
Wed Aug 14, 2019 6:51 am
Valuethinker wrote:
Wed Aug 14, 2019 5:36 am
You can leverage against your home or other rental property. That money can't be called - there's no covenant test on the value of your own home for example. That's really the only long term finance you can get.
It's a common mistake to think that taking a mortgage against one's home provides leverage for one's portfolio. It doesn't. The mortgage is against the home. Here's a link to an older post explaining this: On Leverage. Interested readers can read my earlier posts in that same thread providing more context for the post.
I haven't read your thread, but what I said is, I think, true in and of itself.

You can leverage against a property, backed up by your labour income (own home) or tenant rental income (commercial rent property). And at least for a home mortgage you are then insensitive to swings in the value of the home - you can be in negative equity but the bank cannot demand repayment (some US states are non recourse, and I believe Alberta used to be? ie you can walk away from a home underwater, and cancel the debt by "giving back the keys"). That's very different from a stockbroker margin account.
longinvest wrote:
Wed Feb 27, 2019 5:21 pm
...
But, the leverage isn't against his salary, nor against his portfolio, but against his house. That's why the bank is loaning him money for such a long term at such a low rate. As long as Investor 1 keeps a mortgage (including a home equity line of credit, HELOC), he is exposed to foreclosure. By paying his mortgage, Investor 1 isn't reducing the risk of losing his portfolio but the risk of losing his house.
...
It isn't mental accounting to consider that the collateral that was provided to get the loan is the subject of the leverage.
Legally you have borrowed against your home. In an economic sense what secures that loan is your labour income.

longinvest
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Joined: Sat Aug 11, 2012 8:44 am

Re: Cheap Long-Term Leverage for International Stocks

Post by longinvest » Wed Aug 14, 2019 11:34 am

Valuethinker wrote:
Wed Aug 14, 2019 8:37 am
Legally you have borrowed against your home. In an economic sense what secures that loan is your labour income.
I suggest googling "non-recourse mortgage". Anyway, the bank will always foreclose on the house before trying to sue the borrower for a deficit. There might not be a deficit.

The mortgage leverages the real estate investment. Depending on legislation (and mortgage contract), the borrower could sometimes be held personally liable for any deficit in case of foreclosure.
Bogleheads investment philosophy | single-ETF balanced portfolio | VBAL

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