if individual investors bought the S&P with leverage, they would retire in 10-15 years. But the money management industry keeps people in these terrible portfolios
We'd all like to capture maximum risk adjusted returns, but compromises must be made depending on your desired outcome and constraints.
If you maximize equity exposure too high, too long, you will potentially get blown out of the water. Broadly speaking, at some point, gains must be locked in and invested somewhere less risky (assuming your average person investing to retire).
https://archive.nytimes.com/screenshots/www.nytimes.com/inte...
https://archive.nytimes.com/www.nytimes.com/interactive/2011...
But the general point that US equity returns have been good and leverage would have increased them stands.
For some reason, Americans are “told” to get 4x leveraged to the real estate market but to pay for their equities with 100% cash.
For the 2000s, a US-only investor would only have been saved from the S&P500 by having at least 20% bonds and rebalancing:
* https://www.forbes.com/sites/advisor/2010/09/13/its-not-real...
Of course if you were not US-only, but rather internationally diversified (and rebalanced), you would also have been fine. Diversification is important, even for Americans (cited sources in the description):
I noticed he has another on the related topic of bias toward investing in one’s home country.
Your mortgage is fixed for 15-30 years (depending on mortgage product), and your real estate cannot be margin called (unlike securities which are constantly fluctuating in price).
Edit: Over leveraging on margin to buy equities? Not great. Borrowing against real estate equity to invest in equities, with rent comfortably covering the debt servicing? Potentially not as bad. TLDR Manage your risk exposure appropriately.
If I could leverage 4:1 on the total market index using a fixed 30 year loan without the ability to force a sale I would in a heartbeat. Unfortunately, that’s just not how it works.
And anything claiming to be the solution to that (like a leveraged ETF such as UPRO), suffers from volatility decay that causes it to underperform or eventually go to zero in horizontal markets (e.g. lost decades).
Doesn't make it a good strategy.
If you cherry-pick a specific period, sure. With that perfect foresight everyone can retire in a year, let alone 10-15.
You could also go broke! (or at least significantly underperform historical averages.) Sure, you can make higher returns by taking more risk. That's not most people's tolerance in a retirement portfolio.
There are plenty of other ways to diversify besides a 60-40 portfolio that are a lot lower risk.
Anyways, go ahead and put 100% of your portfolio in XXXX.P, and enjoy your retirement in 2034!