UnThreaded | Threaded | Whole Thread (10) | Ignore Thread Prev Thread | Prev | Next | Next Thread
Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75797  
Subject: Leveraged S&P500 Date: 3/1/2011 1:37 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 4
I'm not totally sure I got this completely right, but here's what I get
for S&P500 monthly for the past 25 years, Jan-1985 thru Dec-2010.

Initial investment $10,000 on Jan 31, 1985, ignoring dividends, taxes, fees, and commissions. No additional money put in, no money taken out.

No margin:
Final value: $70,013 (That's about 8.1% CAGR w/o dividends, so it passes the smell test.)
Highest value: $86,254

Initial margin: 25% ($2500), rate 5% (we should be so lucky!). Margin interest allowed to accumulate and compound.
Final value: $78,405
Highest value: $100,171
Total margin interest: $6610

The value is the stock value (started out at $12,500) minus the current margin amount (which is $2500 plus the total accumulated margin interest).

At a more realistic margin rate of 7%:
Final value: 72,257
Total margin interest: $12,760

===================
So you get an idea of why people here aren't terribly excited about margin leverage. You made an extra $2200 and the broker made $13K.
Or you made $8400 and the broker made $7K. You took on additional risk but the broker got the lion's share of the benefit.
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (10) | Ignore Thread Prev Thread | Prev | Next | Next Thread

Announcements

The Retire Early Home Page
Discussion on accelerating retirement day.
Pencils of Promise - Back to School Drive
"Pencils of Promise works with communities across the globe to build schools and create programs that provide education opportunities for children."
Managing Your Wealth
Our own TMFHockeypop from Rule Your Retirement fame on the TV show Managing Your Wealth.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement