Hedge ETF portfolio: With a loan (time diversification)


While rushing headlong into debt for a single-family home doesn't seem to be a problem, the stock market is showing great reluctance to invest on credit. Never invest on creditis one of the principles for many on the stock market. Yet there are studies that suggest that with an Securities Loan either the yield increased become or with the same return that risk reduced can be.

What sounds astonishing has a plausible background: the ETF portfolio is said to be better secured through time diversification.

One diversification investing in equities does not reduce returns, but at the same time protects the portfolio against losses in value. Since this effect has no costs or disadvantages, it is called a free lunch. A similar effect has been empirically determined when investing with a securities loan.

Temporal diversification

The effect is based on the fact that Wealth accumulation (over lifetime) is not linear, but much larger amounts are paid into the portfolio at older ages than at younger ages. As a result, the value of the portfolio is more strongly influenced by the current performance of the stock market, since the portfolio was largely built up in old age. You can have this effect away diverseverify. You buy more stocks at a young age. Since the salary is usually not sufficient for this, shares are also bought with a securities loan. You do this until you reach your target.

In the second phase, the loan is then melted off again without making any further payments into the portfolio. This will get you to one temporal diversification of the portfolio. This diversification makes your portfolio more stable and secure in the long term. In addition to diversification across multiple companies, this is when you Studies by Ayres and Nalebuff familiar, another free lunch. The authors have clearly illustrated their studies in their book lifecycle investing* shown. Anyone who can sleep well with an aggressive wealth accumulation strategy should take a closer look at the book and the ideas. Important findings are also contained in the authors' study, which is available free of charge.

The authors found a lower standard deviation for the same risk. They summarize:

For example, an initially-leveraged portfolio can produce the same mean accumulation as a constant 75% stock allocation with a 21% smaller standard deviation.

Ayres and Nalebuff

Secure your portfolio with a securities loan?

If you are considering boosting your portfolio with a securities loan, you should not spend money on fees that are too high. Therefore, I have compared numerous depot providers with each other and in this one Securities loan comparison & guide summarized. You can find the best stock portfolios in the Securities account comparison.

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