I've been optimizing various aspects of my investment setup recently, and will write up some tips and tricks that I've found in the form of "answers" here. Others are welcome to share their own here if they'd like. (Disclaimer: I’m not a lawyer, accountant, or investment advisor, and everything here is for general informational purposes only.)

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I've been using MaxMyInterest since 2015. They list out the highest-interest FDIC-insured savings accounts and make it easy to open them and transfer money between them. They'll also automatically track which of your savings accounts has the highest interest rate (if you have more than one) and move your money there. (Or if you have so much money that you exceed the FDIC limit ... which somehow has never been a problem for me! ... it can split your money into multiple accounts to get around that.) It also links with your low-interest everyday checking account, and will periodically transfer money back and forth to keep the latter balance at whatever amount you tell it. I really like that last feature, it saves me time and mental energy. They charge a fee of (currently) 0.08%/year × however much money you have in the high-interest savings accounts.

Some online reviews say there are delays in withdrawal from high-yield savings accounts from lesser-known online-only banks. Since liquidity is the whole point of having money in savings accounts, do you think it's better to stick with e.g. AmEx and Ally?

2Steven Byrnes4y
The list of options and interest rates as of right now (2020-05-12) are here, so you can decide for yourself. (If anyone is reading this message in the future, PM me for an updated screenshot.) I haven't paid much attention to how fast the transfers go through because I've never needed to transfer money in a hurry. My vague impression is that it usually takes a day or so, I guess.

This only just occurred to me on reading your comment (and is probably obvious): many savings accounts have some limit of free withdrawals a year. But there are many savings accounts with close to the best rate -- so just by splitting your savings across multiple accounts allows you to have more of your money in higher interest accounts with little cost

2Steven Byrnes4y
I think MaxMyInterest only lists savings accounts that offer unlimited free online transfers. You might think that there must be a trade-off of that requirement against interest rate, but that doesn't seem to be the case; the rates are as good as anything on the market, even including CDs, as far as I've been able to tell the couple times I've quickly looked over the years. PM me if you want a screenshot of their current offerings.

Possible places to look for alpha:

  1. Articles on https://seekingalpha.com/. Many authors there give free ideas/tips as advertisement for their paid subscription services. The comments section of articles often have useful discussions.
  2. Follow the quarterly reports of small actively managed funds (or the portfolio/holdings reports on Morningstar, which show fund portfolio changes) to get stock ideas.
  3. Follow reputable activist short-sellers on Twitter. (They find companies that commit fraud, like Luckin Coffee or Wirecard, and report on them after shorting their stock.)
  4. Look for Robinhood bubble stocks (famous examples being Nikola, Hertz and Kodak) and short them as they start to burst. (But watch out for Hard To Borrow fees, and early assignment risk if you're shorting call options.)
  5. Arbitrage between warrants and call options for the same stock. Robinhood users can't buy warrants but can buy call options, so call options can be way overpriced relative to warrants. (I'm not sure why hedge funds haven't arbitraged away the mispricings already, but maybe it's because options markets are small/illiquid enough that it's hard to make enough money to be worthwhile for them.)
  1. Look for sectors that crash more than they should in a market downturn, due to correlated forced deleveraging, and load up on them when that happens. The energy midstream/MLP sector is a good recent example, because a lot of those stocks were held in closed end funds in part for tax reasons, those funds all tend to use leverage, and because they have a maximum leverage ratio that they're not allowed to exceed, they were forced to deleverage during the March crash, which caused more price drops and more deleveraging, and so on.
  • What are some reputable activist short-sellers?
  • Where do you go to identify Robinhood bubbles? (Maybe other than "lurk r/wallstreetbets and inverse whatever they're hyping").

I guess this question is really a general question about where you go for information about the market, in a general sense. Is it just reading a lot of "market news" type sites?

9Wei Dai4y
I'm reluctant to give out specific names because I'm still doing "due diligence" on them myself. But generally, try to find activist short-sellers who have a good track record in the past, and read/listen to some of their interviews/reports/articles to see how much sense they make. I was using Robintrack.net but it seems that Robinhood has stopped providing the underlying data. So now I've set up a stock screener to look for big recent gains, and then check whether the stock has any recent news to justify the rally, and check places like SeekingAlpha, Reddit, and StockTwits to see what people are saying about it. Also just follow general market news because really extreme cases like Hertz will be reported. Podcasts seem to be a good source, especially ones that interview a variety of guests so I can get diverse perspectives without seeking them out myself. I currently follow "Real Vision Daily", "Macro Voices", and "What Goes Up".

Note on 5: Before you try this, make sure you understand what you're getting into and the risks involved. (There are rarely completely riskless arbitrage opportunities, and this isn't one of them.)

  1. Stock borrowing cost might be the biggest open secret that few investors know about. Before buying or shorting any individual stock, check its borrowing cost and "utilization ratio" (how much available stock to borrow have already been borrowed for short selling) using Interactive Broker's Trader Workstation. If borrowing cost is high and utilization ratio isn'
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For people in the US, the best asset class to put in a tax-free or tax-deferred account seems to be closed-end funds (CEF) that invest in REITs. REITs because they pay high dividends, which would usually be taxed as non-qualified dividends, and CEF (instead of ETF or open-end mutual funds) because these funds can use leverage (up to 50%), and it's otherwise hard or impossible to obtain leverage in a tax-free/deferred account (because they usually don't allow margin). (The leverage helps maximize the value of tax-freeness or deferral, but if you don't like the added risk you can compensate by using less leverage or invest in less risky assets in your taxable accounts.)

As an additional bonus, CEFs usually trade at a premium or discount to their net asset value (NAV) and those premiums/discounts show a (EMH-violating) tendency to revert to the mean, so you can obtain alpha by buying CEFs that have higher than historical average discounts and waiting for the mean reversion. There's a downside in that CEFs also tend to have active management fees, but the leverage, discount, and mean reversion should more than make up for that.

it's otherwise hard or impossible to obtain leverage in a tax-free/deferred account (because they usually don't allow margin)

Another way to get leverage in an IRA is to buy long-dated call options (as recommended in Lifecycle Investing). Would you expect CEFs to be superior?

4Wei Dai4y
I don't have a detailed analysis to back it up, but my guess is that CEFs are probably superior because call options don't pay dividends so you're not getting as much tax benefit as holding CEFs. It's also somewhat tricky to obtain good pricing on options (the bid-ask spread tends to be much higher than on regular securities so you get a terrible deal if you just do market orders).
I pretty much never use market orders for options. With a little patience and a limit order, you can usually get the midpoint between bid and ask, or close to it. This would be especially important for LEAPS.
2Wei Dai4y
How do you do this when the market is moving constantly and so you'd have to constantly update your limit price to keep it at the midpoint? I've been doing this manually and unless the market is just not moving for some reason, I often end up chasing the market with my limit price, and then quickly get a fill (probably not that close to the midpoint although it's hard to tell) when the market turns around and moves into my limit order.
Well, it's obviously not going to be the midpoint when it fills because you can only buy at someone's ask or sell at someone's bid. But with a limit order, you can be the best bid or ask. I don't usually chase it. If you're buying a call and the market drops, you get a fill. If it rallies, maybe you wait 15 minutes and adjust, or try again tomorrow. For LEAPS it wouldn't be unreasonable to try for a few days. The market is usually calmer in the middle of the trading day, maybe because the big players are eating lunch, although it can get chaotic again near the close. Except for a very liquid underlying near the money, you're almost always trading options with a market maker. The market maker will set the bid and ask based on his models. If he gets a fill, and can't get enough of the opposite side, he'll buy or sell shares of the underlying to neutralize his delta. He's not making directional bets, just making money on the spreads. If you offer a trade near the midpoint, but even slightly in the market-maker's favor, he'll usually trade with you, when he gets around to it. This could easily take fifteen minutes. He also doesn't like you narrowing the spread on him, because that means someone might trade with you directly and he doesn't get his cut, so if he can handle your volume, he'll just take your order off the book.

Another way to get leverage in a retirement account is with leveraged ETFs. I am using some of those in my IRA currently. You can get up to 3x for some index ETFs.

I'm still interested in these CEFs for diversification though, how do you find these?

3Wei Dai4y
Yeah, and another way I realized after I wrote my comment is that you can also buy stock index futures contracts in IRA accounts, and I forgot exactly but I think you can get around 5x max leverage that way. Compared to leveraged ETFs this should incur less expense cost and allow you to choose your own rebalancing schedule for a better tradeoff between risk and trading costs. (Of course at the cost of having to do your own rebalancing.) Also after writing my comment, I realized that with leveraged CEFs there may be a risk that they deleverage quickly on the way down (because they're forced by law or regulation to not exceed some maximum leverage) and then releverage slowly on the way up (because they're afraid of being forced to deleverage again) which means they could systematically capture more downside than upside. Should probably research this more before putting a lot of money into leveraged CEFs. SeekingAlpha.com has a CEF section if you want to look for other people's recommendations. CEFAnalyzer.com and CEFConnect.com have screeners you can use to find what you want on your own.

Using CDs / Savings Accounts for extra risk-free return

With portfolio margin, you can easily find yourself with more available leverage than you want to use, i.e., in the form of extra "buying power" or "equity". Instead of letting that go to waste, you can withdraw some of your extra equity (and cover that with margin loan or box spread financing) and put that cash into an FDIC-insured savings account or CD, which currently yield 1% higher than the borrowing cost. Here's my explanation of why this "free lunch" is possible:

I've been wondering why some banks (e.g., Goldman Sachs's Marcus, Ally Bank) pay customers 1.5% interest on their savings account, when other interest rates are so much lower. (Withdrawing excess "equity" from my margin account and putting it into such a savings account is another way to make extra risk-free returns, currently 1% per year which seems amazing when you consider that 3-year treasuries are at .25%.) From Goldman Sachs's annual report, "These deposits include savings and time deposits which provide us with a diversified source of funding that reduces our reliance on wholesale funding." From other sources it seems that wholesale funding is less reliable in economic crashes, when wholesale interest rates could spike for banks that are deemed risky by the market, whereas retail customers are more likely to stick with banks they're used to, since their deposits are insured.

So it seems like as long as the federal government continues to subsidize savers and banks (by implicitly backing the FDIC), this extra return should be available.

ETA: See also Are There Ways to Maximize FDIC Insurance Coverage?

I came here to say that I'm surprised this advice isn't on top of every list of personal investment advice. Almost 1% risk-free extra return per year, on top of whatever else you're getting from your investments. Isn't it crazy that this is possible, when 10 year treasuries are yielding only ~0.7%? How is every financial columnist not shouting this from their rooftops?

Then I noticed that it's on the bottom of my own advice list, due to not having received a single up-vote. What gives, LW?

Inferential distance? Or simply knowledge distance. You lose me at "With portfolio margin". You're talking about financial instruments that, so I understand, you have a lot of professional experience in using, but I know nothing about these things. I googled "box spread financing", and it turns out to be a complicated instrument involving four separate options that, I'm still not sure what the purpose is. No criticism of yourself intended, but if a complete stranger started talking to me about box spread financing, despite it being a real thing I'd assume they were touting a scam. I don't know what "withdrawing excess "equity" from my margin account" means, nor the quote from Goldman Sachs (which would not come to my attention anyway). And personally, I'm in the UK and a lot of what you're talking about is US-specific, but I can't even tell which parts are and which aren't. CD? FDIC? I do not know of a UK bank offering more than derisory interest on a savings account (typically 0.01% for instant access, 0.35% if you never withdraw money), but perhaps the banks I know of (retail banks) are not the sort of banks you're talking about. The Wikipedia page for Goldman Sachs suggests it is not involved in retail banking.
1Thomas Kwa4y
I've been looking into this and find it not worth my time, though I plan to try it anyway to gain familiarity with investment. First I have to get a margin account. This is not too much trouble. Then I upgrade this to portfolio margin; TD Ameritrade says I need $125k, "full options trading approval, and three years of experience trading options". Investing for myself is out; what about my parents? They have a passing interest in finance, so they can likely pass the test after I discuss it with them for a few hours. Then I need to figure out how box spreads work. Being justifiably cautious I should first try it on paper, then with 20% before selling the full number of boxes. Finally I need my parents to set up three bank accounts in an online bank to maximize FDIC coverage, adding administrative work. What do they gain from this? 3-year Treasury yield is 0.23%, but the Facebook thread you linked suggests I should be unlikely to write a box for less than 0.6%. Savings and CD rates are 1.15%, so the difference is 0.65%. I will not go remotely close to 10x margin on someone else's life savings, and puts are expensive. If I keep 40% in the brokerage account, this means they actually gain .65% * .6 = .39%. Interest on savings is taxable as ordinary income, so until they retire, over half of this is eaten up by taxes (assuming the capital loss from the box spread is used to offset long-term capital gains). Considering that this will take a couple of weeks of free time plus intermittently checking in to prevent margin calls, and there's still a risk of screwing up somehow, the after-tax benefit is currently less than what either I or my parents value our time at.
5Wei Dai4y
Thanks for the feedback. I guess I in part was expecting people to learn about portfolio margin and box spread options for other reasons (so the additional work to pull out equity into CDs isn't that much), and in part forgot how difficult it might be for someone to learn about these things. Maybe there's an opportunity for someone to start a business to do this for their customers... BTW you'll have to pass a multiple-choice test to be approved for PM at TDA, which can be tough. Let me know if you need any help with that. Also I've been getting 0.5%-0.55% interest rate from box spreads recently, and CDs are currently 1.25%-1.3%. CDs were around 1.5% when I first wrote this, so it was significantly more attractive then. I would say it's still worth it because once you learn these things you can get the extra return every year without that much additional work, and over several decades it can add up to a lot.
Box spreads can be dangerous if you don't know what you are doing. Make sure you're using European-style options (which may only be exercised at expiry) to avoid the risk of early assignment breaking your box. If you lose one of the short options, it's no longer completely market-neutral and you're exposed to delta risk. You also need to open the entire spread at once instead of "legging in", or you can lose money to slippage. And in a margin account, a broker can typically sell any of your positions (because they're collateral) to protect its interests, even part of a spread, which can again expose you to delta risk if they don't close your whole box at once. And a broker can typically increase their margin requirements during times of market volatility. They'll usually give you the courtesy of a margin call to give you the time to put up funds or liquidate assets in your preferred priority, but again, in a fast-moving market they are not required to wait for you to protect their interests. You have to watch these, and I can't call them risk-free.
4Wei Dai4y
Good points. I guess technically it's actually "expose you to gamma risk" because the broker would only close one of your positions if doing so reduced margin requirements / increased buying power, and assuming you're overall long the broad market, that can only happen if doing so decreases overall delta risk. Another way to think about it is that as far as delta risk, it's the same whether they sell one of your options that long the SPX or sell one of your index ETFs. Hopefully they'll be smart enough to sell your index ETFs because that's much more liquid? The above is purely theoretical though. Has this actually happened to you, or do you know a case of it actually happening?
Yeah, that sounds right. But gammas can turn into delta as the market moves. If you do box with American options and get assigned early, the shares (or short shares) will hedge you for a while because they'll have a similar contribution to your overall portfolio delta as the option they replaced, but it's not going to have the same behavior as an option when the price moves. So you'd want to close and reposition before that happens, which, of course, requires capital and commissions. You would think. Sometimes you get liquidated by an algorithm though. I've heard that Interactive Broker's liquidation algorithms are especially aggressive, which is part of how they can offer such competitive margin loan rates. (They also have a "liquidate last" feature that lets you protect some positions from the algorithm for longer. Definitely use that for the boxes.) Yes. I have no first-hand experience with this. I have heard things on forums from people, but I can't call that a reliable source.
Interactive Broker’s liquidation algorithms are aggressively fast, but my rather limited experience suggests they're pretty sensible about what to liquidate.

Note that when you do this with CDs, you are borrowing short-term and lending long-term, so you're exposed to interest rate volatility.

You're thinking of borrowing with margin loan, but with box spread financing (see my "answer" on that) you can lock in a borrowing rate for up to 3 years, so if you match that with the CD's maturity you can cancel out the interest rate risk.

1Jonas Vollmer4y
Is this still worth it if you're exceeding the FDIC limit of $250k?
4Wei Dai4y
Yes, you can open accounts at multiple banks and use other tricks to get more insurance. See https://smartasset.com/checking-account/how-much-is-fdic-insurance

Is this really any better than just buying T-Bills? FDIC insurance, sure, but box spreads do have certain risks that the insurance won't cover, and T-Bills are pretty safe.

Both of these references fall under the "mean-variance" paradigm, but according to Strategic Asset Allocation: Determining the Optimal Portfolio with Ten Asset Classes:

Both academics and practitioners agree that the mean-variance analysis is extremely sensitive to small changes and errors in the assumptions. We therefore take another approach to the asset allocation problem, in which we estimate the weights of the asset classes in the market portfolio. The composition of the observed market portfolio embodies the aggregate return, risk, and correlation e

... (read more)

Use options or futures to avoid realizing capital gains

When you want to reduce exposure to some market but don't want to sell your assets due to tax considerations, you can make a nearly opposite bet with options or futures to neutralize your exposure. "Nearly" is important because the IRS will consider you to have sold your assets if you make an exactly opposite bet, e.g., synthetic short via options with the same underlying asset as what you're holding. See https://www.cmegroup.com/education/whitepapers/hedging-with-e-mini-sp-500-future.html and https://www.optionseducation.org/strategies/all-strategies/synthetic-short-stock.

Or in the UK just spreadbet, which is entirely tax-free. (You can spreadbet futures & options.)

Box spread financing (borrow for 3 years at around 0.55% interest rate currently)

With box spread financing, you can borrow for up to 3 years at a fixed rate about 30bp (.3%) above the corresponding treasury yield. Someone may post a more detailed article about this later, but in the meantime see https://www.reddit.com/r/wallstreetbets/comments/fegqz0/box_spread_financing_for_extremely_cheap_085/ and https://www.theocc.com/components/docs/about/press/white-papers/2016/box-spreads-options-strategies-for-borrowing-or-lending-cash.pdf

Portfolio margin

Portfolio margin allows higher leverage and lets you "net" positions against each other for the purposes of determining margin requirements. E.g., you can be 10x long VTI and 10x short SPX via options, and have only a small margin requirement. This allows some of the other tips/tricks to work.

Not all brokerages offer this, but I know E*TRADE, TD Ameritrade, and Interactive Brokers do. And you do have to apply for it and pass a test or interview to show that you understand what you're getting into.

When investing in individual stocks, check its borrow rate for short selling. If it's higher than say 0.5%, that means short sellers are willing to pay a significant amount to borrow the stock in order to short it, so you might want to think twice about buying the stock in case they know something you don't. If you still want to invest in it, consider using a broker that has a fully paid lending program to capture part of the borrow fees from short sellers, or writing in-the-money puts on the stock instead of buying the common shares. (I believe the latter tends to net you more of the borrow fees, in the form of extra extrinsic value on the puts.)

What is it that guarantees that whoever borrows the stock does so in order to short it? Couldn't they just be borrowing it to go further long?

Negotiate with your brokers

A lot of brokerages will pay you cash bonuses to transfer your assets to them (and typically keep them there for a year) and this is another source of extra risk-free return. These public offers are usually capped at $2500 bonus for $1M of assets, but some places will give you $2500 per $1M of assets, plus deep discounts on futures/options commissions and margin rates. (You can PM or email me to get details and contact info of the brokerage representatives I've talked with.)

Reduce exposure/leverage during market volatility

During periods of high market volatility, the expected return of the stock market probably doesn't compensate for the increased risk. See https://www.facebook.com/bshlgrs/posts/10219080184370250?comment_id=10219085165454774 for a discussion of this. (Facebook comment linking seems to be broken at the moment, see discussion under the first comment by Carl Shulman.)

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This seems suspect to me; it violates EMH and AFAICT the backtest was only carried out to 2017 (it should be possible to backtest to at least 1993, when VIX started being tracked).

3Wei Dai4y
Yeah, I've become suspicious of it myself, which is why I retracted the comment. (It should show as struck out?)
Two reasons why I think reducing exposure during market volatility is a good idea. First, volatility is predictable. (I don't think this fact violates the EMH, so it should be uncontroversial.) Future volatility is highly correlated with recent volatility. Second, the Kelly strategy is optimal. More exposure only helps to a point, and after that increasing leverage actually reduces gains. The right amount depends on the future payoff distribution and the size of the current bankroll. Given those two points, Kelly implies that if your bankroll just shrunk due to a losing bet, the previous amount of exposure you calculated is now too high, and you would need reduce your exposure to maintain the target fraction even if the payoff distribution didn't change. But we also know that the variance of the future payoff distribution is higher than what we calculated before, because volatility is somewhat predictable, and it just got higher, which suggests that you should reduce exposure even further.
I do think the basic idea of reducing exposure is valid. I don't assume a constant return distribution, so in principle, the optimal Kelly fraction for an asset can vary over time. Risk-parity portfolios like the one I described in How to Lose a Fair Game did seem to generate a little alpha due to the volatility adjustments when I backtested them.

Peer-to-peer loans (e.g. LendingClub). I wouldn't suggest starting with this unless you're already investing in the usual instruments. These are a more exotic investment for extra diversification. These have a high risk of default (don't bet the farm), but also high interest. You get to be the credit card company.

The returns I've seen from ppl who've done this were in line with the stock market so on a risk-adjusted basis it seems like a bad idea. 

It's not about the absolute returns, but their correlation to your other investments. Even if it's a worse investment than the stock market on its own, adding it to your portfolio can make the overall portfolio better, if sized appropriately to its volatility. That's why I said not to start with this unless you're already investing in the usual instruments.
Is it actually uncorrelated? Seems like default would be significantly more likely at the same times that a stock market crash would be, because that's when ppl lose their jobs. Can you do P2P loans to ppl in other countries? That would reduce correlation somewhat. 
Are the kind of people who take out P2P loans the same kind of people who have a lot of excess money to invest in the stock market? How correlated would they be? That depends. If you're investing in small businesses, maybe a lot. People borrow money for various reasons, and have different risk profiles, and as the investor, you can pick and choose. For example, a recent college graduate who just landed a high-paying job may get a P2P loan to consolidate credit card debt. How correlated do you expect that to be to the stock market? Individuals are still affected by the broader economy (the guy could lose his job because of this), but we don't need 0% correlation to benefit a portfolio, and you can cut off the extreme tail in the stock market using cheap index puts. The only way to answer this is with data.

Bankruptcy risk for a leveraged portfolio

From Brian Tomasik's Should Altruists Leverage Investments?

Also note that this continuous-time model doesn't allow margin accounts to go bankrupt. Because a continuous-time margin account maintains constant leverage, if its assets fall, it rebalances immediately by selling some securities. In the real world, margin accounts can go bankrupt. This could, with low probability, even happen if the account rebalances daily. For instance, a 5X-leveraged margin account that rebalanced once per day might have been wiped out by 1987's Black Monday. By not allowing for bankruptcy (and by ignoring black swans in general), continuous-time equations like those above may slightly overstate the expected value of leverage. In the extreme case, taking t = ∞, a margin investor who doesn't rebalance continuously would go bankrupt with probability 1 (since eventually there would be a huge, near-instantaneous market downturn that destroys the account), while the leveraged mean equation concludes that the margin investor ends up with infinite expected wealth.

One might think that rebalancing more frequently than daily would help (perhaps with the help of an algorithm), but you can't rebalance when markets are closed, e.g., during weekends. I haven't figured out the best way to mitigate this risk yet (which isn't really so much about bankruptcy as being over-leveraged when asset values fall too much before you're able to rebalance), but two ideas are (1) keep some put options in one's portfolio, and (2) have some assets that are protected during bankruptcy (e.g., retirement accounts, spendthrift trusts).

And being careful about instruments with unlimited downside.

Tax Lien certificates. Basically, you're giving an extension to someone who is delinquent on their property taxes, and ensuring that the local government, who probably very much needs predictable funds, collects them in a timely manner.

Some of these are cheap, in the hundred dollar range, which makes it easier to get started even if you don't have a lot of money to invest. Terms and availability depend on the area you buy them from. Interest rates can be very high, around 20% in some areas. In some cases (likely foreclosures), you can have a good chance of becoming the owner (or part owner) of the property, which can be massively profitable (but also a hassle).

On the other hand, some property is not that valuable, so you need to do some research. The lack of secondary markets for these makes them rather hard to sell early. And if you don't live in an area that offers good terms, you may have to travel to find the good deals, which is an expense. Some counties do offer auctions online, but you'd still need to do some research on the property.

Pay your monthly bills with margin loans

Instead of maintaining a positive balance in a bank checking account that pays virtually no interest and having to worry about overdrafts, switch your bill payment to a brokerage account that offers low margin rates, and pay your bills "on margin". (Interactive Brokers currently offers 1.55% (for loans <$100k), or negotiate with your current broker (I got 0.75% starting at the first dollar)). Once a while, sell some securities, move money back from a high yield savings account or CD, or get cash from box spread financing, to zero out the margin balance.

This can prevent you from being able to deduct the interest as investment interest expense on your taxes due to interest tracing rules (you have to show the loan was not commingled with non-investment funds in an audit), and create a recordkeeping nightmare at tax time.

If you're investing to donate, consider using a tax-deductible entity

If you ultimately want to give, you can get ~1% extra per year by using a tax-deductible entity.

In the UK, it's a substantial effort to set up a charity, but you have a lot of freedom with respect to how you invest, so you can also implement relatively advanced strategies.

In Switzerland, the effort of setting up a charity is very small, but you do face some limitations on investment options.

I haven't looked into other jurisdictions.

It's worth mentioning that this is generally a bad idea in the US tax regime (despite being trivially easy), because the options for handling capital gains and losses differently mean you can sometimes do better with pre-donation investments than with post-donation investments.

(I'm a finance professional, but no one's tax or investment advisor, much less your tax or investment advisor.)

2Wei Dai4y
Can you go into more detail about this, or link to an article?
I'm being unnecessarily oblique in the above comment, for which I'm sorry. What I mean is, in a taxable account, you have the option to donate winners and harvest capital losses on losers. In a post-donation investment vehicle like a DAF, you don't have that optionality. (Compared to a taxable account, your treatment on winners also comes out to no capital gains tax, but your treatment on losers is worse, with no harvesting losses.) (not tax or investment advice)
5 comments, sorted by Click to highlight new comments since: Today at 2:06 AM

I kind of miss the days when I believed in the EMH... Denial of EMH, along with realizing that 100% and 0% are not practical upper and lower bounds for exposure to the market (i.e., there are very cheap ways to short and leverage the market), is making me a lot more anxious (and potentially regretful) about not making the best investment choices. Would be interested in coping tips/strategies from people who have been in this position longer.

(It seems that in general, fewer constraints means more room for regret. See https://www.wsj.com/articles/bill-gates-coronavirus-vaccine-covid-19-11589207803 for example.)

Can you find a way to bound your error?

I have a general life heuristic that I will only ever try to be in the ballpark of optimal. By analogy, I want to get the Big O right, and not worry about the constants.

A picture I have in my head related to this is the scene at the end of Schindler's List where he's lamenting that he could have saved more people by selling his car, or his jacket, or whatever. But he'd saved hundreds. I decided I didn't want to live thinking that way.

Maybe see also Slack (or Studies on Slack).

Or also consider that if you optimize too hard you might Goodhart.


Looks like all/most of those answers are for US residents?

Some of these answers are still applicable outside the US. Every country has different tax laws though. There are also differences in what kinds of investments are accessible. I've heard that some Europeans aren't allowed to trade American ETFs, for example. I'm not sure of the details though. On the other hand, they can trade CFDs, which are illegal in the US.