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.)
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.
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.
References/tools for portfolio optimization
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.
Possible places to look for alpha:
- 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.
- 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.
- 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.)
- 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.)
- 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.)
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
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?
Leverage methods and their tax considerations
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.
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.)
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).
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.)
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.
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.
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.
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.