Using Margin?

[james.hendrickson]

Hi All,

I'm getting frustrated with the pace of my wealth building. I'd like it to move faster than it currently us.

Have any of you successfully used margin to build your stock market wealth?

I'm generally against debt, but would curious to see if there are ways to it that are low risk.

[kork13]

Using margin in a stock account is not recommended ... You're going into debt on the hopes that your leveraged investments gain enough to out-perform the interest charged. The risk profile here can be pretty wild.

Using debt to build up real estate income can be successful, but it's easy for that to become a house of cards if you're over-leveraged. If one/multiple properties don't pan out, don't stay rented, or have high unexpected expenses, you can lose your shirt.

We say it all the time, but slow & steady wins the race. Can debt be successfully used to accelerate your asset growth? Sure. But that comes with risk. We say this all the time too: The first million is the hardest. And before that, the first $100k is the hardest.

Be patient with yourself, it'll work out.

[disneysteve]

NO! You can't borrow your way to wealth. I mean, yes, you can use debt strategically such as buying income-producing property, but taking out a loan to bet on stocks? Not a chance.

If you're willing, how about posting your numbers. Let's see your income and your expenses. I'm willing to bet there are more advisable ways for you to improve your performance than gambling with margin loans.

[Fishindude77]

I'd recommend taking up a side hustle or working more if you really want to build wealth.
Most of us could work a whole lot more than we actually do.

[disneysteve]

I'd recommend taking up a side hustle or working more if you really want to build wealth.
Most of us could work a whole lot more than we actually do.

There's no better way to improve your finances than to increase your income. That might mean getting a promotion or switching jobs or taking on a side gig but do something to get more money coming in while keeping your spending flat so that you can direct more money toward your investments.

[QuarterMillionMan]

If you plan on short selling your brokerage account needs to be set up margin but it doesn't mean that you have to leverage margins. I'm not sure why they do this maybe someone can explain it.

[disneysteve]

If you plan on short selling your brokerage account needs to be set up margin but it doesn't mean that you have to leverage margins. I'm not sure why they do this maybe someone can explain it.

Short selling means you are borrowing shares from the brokerage. You have an unlimited potential loss. If the stock price rises the broker can issue a margin call and require you to deposit funds in your account to cover that loss. You have to be set up with a margin account because you are taking a loan from the broker.

[QuarterMillionMan]

Makes sense, thanks.

[LivingAlmostLarge]

I'd recommend taking up a side hustle or working more if you really want to build wealth.
Most of us could work a whole lot more than we actually do.

This is the biggest wealth driver. Listen to Nick Magguli the wealth ladder. Most get stuck on Rung 4 $1-10m. To break out of rung 4 to rung 5 you need to take risk. Start a business, be an early worker at a company, etc. The risk is in the doing. NOT margain investing. I can honestly tell you that the biggest driver of our wealth was risk in ourselves.

1. Risk - quit jobs change careers
2. Risk - quit job - go to start up

these two things paid the biggest dividends for us.

Until that we are definitely rung 4 people, and building wealth, I wasn't going to break out of rung 4, but I did make it go faster by picking some individual stocks and they did well. Really well. And investing heavily in VOO and QQQ and then NO bonds in my portfolio. we are 100% stocks or 95% with 5% cash to buy more. So risking that we would never need cash and then going 100% all in on stocks also helped. But our portfolio at that time was gaining and we had a large shovel.

These are risks I think people can take in rung 3-4 if they wanted to. But margain? eh it's a different ballgame.

Go start a business, change careers, learn a new skill, go to a new field. Network yourself to a high salary.

[bjl584]

I'd avoid margin if possible
There are some advanced trading strategies that take advantage of it, but for the average investor, you're setting yourself up for trouble

[myrdale]

Slow and steady. Keep it simple, keep it consistent.

Concentrate on maxing your Roth IRA. After that maxing your 401(k). Investing beyond that I'd only be doing it with cash I could afford to loose.

I know nothing about margins, beyond it sounds a lot closer to gambling that normal investing. Lastly I'd far rather loose money I have than money I don't have.

[disneysteve]

I know nothing about margins, beyond it sounds a lot closer to gambling that normal investing. Lastly I'd far rather loose money I have than money I don't have.

Exactly.

Buy $1,000 of stock with cash and the most you can lose is $1,000.
Short sell $1,000 of stock with a margin loan and there is no limit to how much you can lose.

[LivingAlmostLarge]

So my theory about Real estate and wealth I asked Chatgpt if i was right and they said yes is that when you are younger and starting out it's easier to buy real estate and make money faster and FIRE. Because of leverage it's easy to scale and easy to become net worth right. You buy homes put down 25% and then you repeat the process. Like buying 10 homes @ $200k each or $2m with $500k down. Then renters pay ad it doubles in 10 years. Then you can retire with a bond like investment payout.

But then I felt there is a point where the portfolio grows faster than real estate wtih compounding. I think it's like $5m, so its' higher than escape velocity where the returns on the portfolio dwarf the real estate earnings/leverage/etc. When the compounding happens on a really big base like $5m 10% a year is $500k and then it keeps growing.

You can retire with a $2m portfoli in RE if it's cash producing and only have $500k sunk in and producing say $10k/month rent. But then the porfolio builds and builds and the $500k keeps on compounding at 10% a year say and becomes millions. You can make $1m a year and if reinvested it can really grow. And the longer you are in the market compouding it becomes harder for real estate to catch up. Real estate doesn't compound at the same rate over 30-40 years.

Ask Chatgpt this. See the difference. RE appreciates but averages 3-4%. You need leverage to grow RE. Compounding on a large base makes a huge diference.