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Ug, forgot to style properly. This should be more readable.

@ Rayvt,
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If you are going to use margin, stay safe. Don't go more than maybe 15%-20% initial margin, not the 50% that Reg T allows. I think this is where I am going to land, especially in a bull market. If there is some obvious bear market and my portfolio has not naturally gone to 20% I will keep that the high end I am allowed to buy into. New money does come into the account every month.
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Be very clear in your mind that with margin at most brokers you are dragging a huge anchor. Typically margin rates are around 8%. Currently IB is charging 1.59%. As I said I need a game plan for when interest rates rise.
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FWIW, I don't particularly like the rule-of-thumb that says your bond allocation should increase each year. And we are retired.
Instead, I use the 5 asset class mix, where each class is 20% of your portfolio.
So not to confuse a new investor, I think we agree that it is important to use some sort of fixed income? We both have different methods of choosing this part of our portfolio. My point is that this decision has a very large impact on how a portfolio will perform. Interestingly I was holding PGF for years which is a preferred share ETF. Also we are at a similar % allocation for fixed we just got there a different way.
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Your best/worst example is an excellent illustration.
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@ DrTarr, Thanks for joining in. Other factors such as your current position, investing goals, and the market primarily dictate asset allocation…
…Both the same age...and you can pick the age but then justify the same bond allocation for both! Does taht work for all ages?
I do not disagree with you that there are more things to think about there. I was throwing out a rule of thumb for a new guy. In general I do not think people hold enough fixed. You also need to consider other sources of fixed income such as a pension or Social Security… I wrote: “In my opinion you must hold a portion of your portfolio on bonds. I start with my age and then adjust for risk and factors such as fixed income etc… no need to go into detail you can find it all on the fool or bogleheads.” Emphasis mine.
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My bond allocation will start mechanically increasing this summer after QE2 ends.

Does it matter what rates are doing - have done etc.?
Just to clarify I am only talking about 5% of my portfolio in this fun money account. Everything else is allocated the way I want it and has been for years. In this specific account I do not hold as much bonds as I would like to because I wanted to buy SA recommendations instead.
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To answer your good question it is no, it does not matter. I am well aware that the yield and price of a bond move inversely. So if I have the correct duration it will not matter. Rates go up and price goes down. I lose some principle but it recovers with a higher yield over the duration of the bonds. I set this date as kind of a mental date to start adding around 2% per year until I get to where I want to be. You are correct that it is a mistake to not just start averaging into the position if that is the allocation I have set. I must wait for new money, already at 10% margin. ?
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Back @ Rayvt, I like the real life example:
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I'm looking at one of our accounts that had these values for "growth of $1000 invested", at year-end from 2006 to 2010:
1000
1180 (wow! 18% gain in one year--load up the boat!)
684 (Oops, 42% loss in one year.)
934
987

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If you held 20% margin at the 1180 level that would be 236 borrowed. Then when it dropped to 684 your borrowed amount would now be 34.5%. If one started with 25% margin you would be at 43% at the bottom, which is pushing it. This helps me wrap my mind around it.
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This is a variation of the sunk cost fallacy. Very common error and damned hard to avoid making this error, even when you are aware of it. I agree that it is very hard to avoid. I see that my aversion to a price drop is affecting a totally rational decision here. This is why I am such a mechanical investor. I try to avoid it every day by having my rules and following them, f.u. Mr. emotions. ? Thanks again DrTarr for pointing this out first.
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Good stuff, I do want to bring the discussion back to the leverage using margin question. Does anyone else have any good resources on the subject? Message boards, articles, books etc…
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Thanks again,
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Jason
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