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Investing Tips: Buy Stock on Margin When Young

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The CXO Advisory Group has an interesting blog post noting a recent paper entitled “Life-Cycle Investing and Leverage: Buying Stock on Margin Can Reduce Retirement Risk”. The gist of this is that there has generally been a 9.1% return on stock investing since 1971. Most margin lending rates are 5%. Therefore, you can leverage a portfolio to increase returns by 4.1% (you’re already earning 9.1% on your other assets that serve as margin collateral). They then go on to back-test a strategy derived from this to show that investing liquid savings and leveraging it 2:1 beat out other more traditional strategies.

This would appear to be a great strategy to use with one of the strategies I discussed in my post “How to Start Investing for Recent College Graduates.”

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Written by walonline

June 2, 2008 at 10:53 am

Posted in Investing, Life, Markets

Tagged with , ,

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