How would you approach margin investing with mostly US stocks?

Investing / Brokers
1

I know there were many margin related topics posted, but I did not find one with the exact same question, apologies if it’s a duplicate post.

So IBKR margin loans for CHF are 1% at the moment for accounts between 90-900k CHF, which is quite a favorable rate, but most of my holdings are US based stocks, so I would be investing in USD basically, would it even matter in this case that I get a 1% CHF loan? On paper the 1% interest in CHF should equal the 5% of interest in USD accounting for currency depreciation. (Even tho the CHF jumped quite a bit already starting with Trumps presidency, but that’s just speculation on my part).

So my question is to more seasoned investors, what would you recommend? Should I invest the margin in Swiss companies? Should I have a bond allocation, so let’s say 90% equities, 30% bonds, to make it a bit safer and avoid margin calls, but still beating a 100% equity allocation? And I guess just as with regular investing, the best is to DCA the margin right? So if I want 15% margin and my account is 100k, with 4k monthly contribution, I should do 15k margin now, and then 600/month going forward?

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Munger had some words to say about leverage. But avoid it.

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I only do margin if the market goes down for more than 15% and only for an amount which I can repay up to a yearly salary.

I had in mind that the interest rate is based on the amount of the loans and not your account holdings.

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4

At least the biggest CH companies are considered rather defensive and stable. The expected risk premium and taxation of dividends wouldn’t be worth the risk to me.
You could try the carry trade with USD stocks, but that’d add FX exposure to your margin trade. May or may not turn out well, but it adds complexity / risk.

Why would you borrow on margin, while at the same time hold bonds? While the current margin interest of 1% is low, you still pay a premium and risk that conditions change. At least for safe CHF bonds, you won’t get 1% return. Once you do, the margin interest might as well go up, as well.
And with 15%, there should be very little risk of margin calls, anyway, unless you go for some meme stock.

Market timing for a 15% drop and recommending DCA seems two different approaches, as well.

I’m not arguing pro or con, but opinions on margin differ quite a bit and in the end it’s your money.

5

I can just tell you what I do, not what you should do:

The currency of the loan is not important for me as I invest all in stocks in the U.S. markets. I used to hold the debt in USD for a long time, but calculating the interest difference I would have made more if the debt would be in CHF. But then there is the tax situation that will change: until now you could deduct the debt interest from tax. So the capital gain on the (negative) carry trade were free of tax and you could deduct the debt interest, nice.

I hold debt in CHF and USD and probably will switch all to CHF when the new tax regime enters.

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6

I’ve tried going for a longer version of this post but ended up lost in the minutiae so here’s a short version and feel free to react if there’s something that needs being expanded.

The basic premise is that cash is a means to pay expenses and a margin loan is a negative cash position.

In that context, I see two options (in the scope of this thread which is that there is a loan to be taken):

  1. take the loan in USD and service it with USD from the dividends of the US companies in your portfolio.

  2. take the loan in CHF and service it with your CHF salary.

Other than tax considerations (deductibility of the interests of the loan until 2028), I’d say other considerations would be a bet on the fluctuations of the respective currencies for which you should have additional information in order to build your conviction.

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7

Or vice versa. Currency conversion is very cheap and fast at IB.

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8

Is this the case for margin loans (and all interest in General)?

I thought this is related to the change in eigenmietwert and would be applicable only to mortgages.

Does somebody have a source where to read this up?

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All interests (except mortgage with limits for up to 10y). You can find the details in the Eigenmietwert thread

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10

Thank you, you make some good points! I will probably wait for that bigger market drop, and then DCA on the way down+up with margin.

Well, I would consider bonds to lower beta, but probably not needed with a 10-20% margin.

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Could you link that by any chance? Not sure which one you mean.