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ETF (Margin Trading) strategy

Discussion in 'Medium/Long Term Investing' started by pepedeluxe, Aug 8, 2018.

Good beginner ETF investment strategy?

  1. Yes

    50.0%
  2. No

    50.0%
  1. pepedeluxe

    pepedeluxe

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    Hi Guys,

    Been doing a lot of research around ETFs and formulating a bit of a simple plan to make the most of an investment loan = to my initial investment and increased by the value of the investment annually, investment loan is at a 7% interest rate.

    Based on my calcs it looks like a fairly solid plan to move from 100k to 2mil + over a 20 year period as long as the chosen ETFs perform at least at a 10% return rate, i understand there will be good and bad years depending on what the market does.

    Am i missing something with this plan or is fairly sound?
     

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  2. tech/a

    tech/a No Ordinary Duck

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    You can trade ETF’s just like any other instrument
    As such you can backtest your strategy (maintaining a % return )
    So all I see missing is a plan of how your going to achieve it that
    Has been backtested and returns the metrics you need to meet
    Your end goal.
    From there you’ll have a blue print of what YOU will put in place
    To achieve it

    On the flip side you may save 20 years by finding out that you
    Planned trading method is highly likely to fail.
    Compounding is a powerful tool but first you need to profit!

    It’s a long journey but better learn how to invest YOUR capital than leave
    It to someone else to lose,underperform or erode with fees and a smile
    While feeding you rhetoric about market factors!!!!

    While it’s a no from me you have seen the power of compounding
    As a strategy it has a long way to go to implementation.
     
    pepedeluxe likes this.
  3. Wysiwyg

    Wysiwyg Everyone wants money

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    In the early years (before returns pass personal income lol) I'm thinking if you had the portfolio in a non working spouse/partners name then it would be more tax effective. Otherwise all earnings will be taxed at your marginal rate. Also would you not pay down the 100k loan asap?
     
  4. pepedeluxe

    pepedeluxe

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    The plan would be to leverage the borrowed funds to increase the investment value, the earnings above the interest on the loan then compounds over time contributing to the long term growth of the account.
     
  5. MarketMatters

    MarketMatters

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    I would lower your expectations on returns as you have only allowed for an historical 5 years return rate. If you look back at the last 5 years we only really experienced a dip in early 2016 but otherwise no real corrections. Take a longer view. Rule of thumb would to expect a decent correction within every 7-10 years (15-20%) although recovery times vary.

    Don't forget since 2009 the western world's central banks have employed aggressive QE strategies allowing the corporate world to become drunk borrowing up on cheap rates spurring growth. Market cycles rarely replicate themselves in the same manner. Take a look here https://www.marketwatch.com/story/the-dows-tumultuous-120-year-history-in-one-chart-2017-03-23

    Lastly ETF's do carry an investment management fee built into the price (0.1% to 1%+) and evident in the buy/sell spread.

    Doesn't look like you have allowed for any distributions (income)? IVV currently offers 1.72%.

    Is the 7% rate what you are being offered now by ANZ? I would allow for a greater margin to allow for interest rate increases as we are at historical lows.

    Assume the monthly increase is your savings plan of $1k pm?

    Tweak your spreadsheet to reflect the above.
     
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