# To do or not to do......



## zuma (Jul 18, 2020)

Hi guys and gals, 
Ive since lost my job so to speak because of Covid and am looking to invest some money i have. 
I have about 250k laying around in my bank doing nothing.. I usually keep in there because i need it once a year to buy and sell products for my company.... I have maxed out my LOC to other investments so i cant borrow anymore.
Since i am kind of out of my business due to Covid I want to invest some of my money for at least a year... Im not sure i need it next year or the year after because of the biz im in...
One option i was looking at was this..








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Any advice for someone in my shoes?

cheers everyone


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## Topo (Aug 31, 2019)

I believe any money that you expect to need one or two years from now should be put in super safe investments such as HISAs or GICs. A Nasdaq 100 fund should be for long term investments (10+ years). It could tank more than 50% in the next one or two years right when you will need the money.

Don't forget to have a well-padded emergency fund. Who knows when business will become normal again. It could be a long ride.


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## james4beach (Nov 15, 2012)

I'll echo what Topo said. Figure out your required living expenses and keep 2 years of expenses in cash, just a savings account.

I'm self employed and actually aim for 3 years of expenses in cash.

I would also repay debts. If I understood you correctly, you borrowed on your LOC recently. Can I ask, why are you increasing your borrowing?

If you maxed out the LOC, and now have a lot of cash sitting around, it sounds like this is borrowed money. Why not repay the LOC and reduce your leverage?


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## like_to_retire (Oct 9, 2016)

james4beach said:


> I would also repay debts. If I understood you correctly, you borrowed on your LOC recently. Can I ask, why are you increasing your borrowing?



Yeah, paying off a loan or mortgage is a guaranteed tax free return.

ltr


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## Topo (Aug 31, 2019)

Financially, I agree that paying off debt is a guaranteed return and should be considered first.

One caveat is that even paid off LOCs that are in good standing could be closed at the whim of the FI. If the funds are needed for business, it may be prudent not to pay back the loan until all business needs are met or at least we are out of Covid woods.


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## Just a Guy (Mar 27, 2012)

As someone who was debt free for a while, let me tell you it’s not a great place to be. An unexpected even can cause huge problem, for me it was getting injured where I couldn’t work for several years. Today I’ve got a large amount of deb, but relatively small compared to the assets and income it generates. I’m much more financially secure today than I ever was being debt free.


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## zuma (Jul 18, 2020)

Thanks for your input people.. I have borrowed the LOC and can easily pay the % payments for the next few years w/o income and only put it into that Nasdaq 100 (that and split with another fund) because of how those funds have done in the last 10 + years.. I may wait to see if the second wave of Covid effects these funds but seems they are doing quite well... My mortgage is paid off. The only debt I have is the LOC but the 2 funds im invested in using the LOC are generating more than the interest payments of the LOC... And since i have about 250k Im not to worried... I only spend about 35k per year for living .. I have a renter and that income covers house bills plus some extra...Guess im just a risk taker and want to get that 250 working ... But tbh only want to use 100k and keep the 150k cash for rainy day


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## Pluto (Sep 12, 2013)

OK zuma, got it - you are OK with the debt. The only thing you might be missing is a tax deduction for your LOC interest. Did you borrow to invest for income? If so you can deduct the interest. If you didn't borrow for income, you can pay it off, then reborrow it to invest for income. then the interest becomes a tax deduction.


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## zuma (Jul 18, 2020)

Pluto said:


> OK zuma, got it - you are OK with the debt. The only thing you might be missing is a tax deduction for your LOC interest. Did you borrow to invest for income? If so you can deduct the interest. If you didn't borrow for income, you can pay it off, then reborrow it to invest for income. then the interest becomes a tax deduction.


Check.. yes i borrowed it to invest for income


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## james4beach (Nov 15, 2012)

You are much braver than me, @zuma . Keep in mind that index you are chasing the performance of fell 83% from 2000-2003. Based on my understanding of investor psychology, there are few people on earth who can tolerate losses that severe.

Another idea, have you thought of amping up the returns even more by using QLD ? This is a leveraged version of QQQ. The 5 year return is 31.8% and 10 year return is 37.5% annualized.

As long as the NASDAQ-100 continues to act this way, QLD will outperform. Normally I would say these things are too risky but QLD really isn't much of a step up in risk. It's going from the risk of an 83% drawdown to 99% drawdown... they are in the same ballpark of possible losses.

That being said, QLD is riskier than QQQ. It may never recover if it were to ever see a massive crash. But one could argue that if you thought a crash greater than say 60% was possible, you wouldn't engage in leveraged investing to begin with... so since you're already here, maybe amp it up?


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## zuma (Jul 18, 2020)

james4beach said:


> You are much braver than me, @zuma . Keep in mind that index you are chasing the performance of fell 83% from 2000-2003. Based on my understanding of investor psychology, there are few people on earth who can tolerate losses that severe.
> 
> Another idea, have you thought of amping up the returns even more by using QLD ? This is a leveraged version of QQQ. The 5 year return is 31.8% and 10 year return is 37.5% annualized.
> 
> ...


interesting...


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## james4beach (Nov 15, 2012)

zuma said:


> interesting...


I should add some warnings... QLD will perform great as long as the NASDAQ is going up, but it amplifies moves both up & down. During the 2008 stock market crash for example it fell as much as 82% and could fall much more next time. Also, if the stock market were to go sideways for many years, zig-zagging up and down but not increasing, QLD would do worse than the NASDAQ index.

QLD does great (almost doubling the NASDAQ performance) in a very specific environment: a _steadily rising_ market. The last few years have been like this, but I don't see any reason to expect it to keep continuing.


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## zuma (Jul 18, 2020)

Hi James. Im a little late revisiting this. you mentioned ""Keep in mind that index you are chasing the performance of fell 83% from 2000-2003. 
Why cant i see back further than 2016?


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## MrBlackhill (Jun 10, 2020)

What you are looking at is holding QQQ and that ETF is indexing NASDAQ.









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## MrBlackhill (Jun 10, 2020)

james4beach said:


> As long as the NASDAQ-100 continues to act this way, QLD will outperform. Normally I would say these things are too risky but QLD really isn't much of a step up in risk. It's going from the risk of an 83% drawdown to 99% drawdown... they are in the same ballpark of possible losses.
> 
> That being said, QLD is riskier than QQQ. It may never recover if it were to ever see a massive crash. But one could argue that if you thought a crash greater than say 60% was possible, you wouldn't engage in leveraged investing to begin with... so since you're already here, maybe amp it up?


In the world of risky investments, leveraged indices are less risky than we think... they may even be optimal.

This website discusses a paper investigating the returns of leverage : Double-Digit Numerics - Articles - The Big Myth about Leveraged ETFs

2x leverage seems to be... historically optimal.

It lacks a rolling returns analysis though since we are not investing our money to wait 20 years to recover from a drawdown and only then outperform the index...

I've ran a few simulations using the historical distribution of daily returns of the stock market and a 2x leverage is not _that_ scary. Investing 1000$ every 20 days for 5040 days (about 20 years), you may end up on the last day with -60% less than non-leveraged as you may end up with more than +100% and that's without taking into account the occasions where the 2x leverage investment reached a few millions before 20 years, which would be a good opportunity to take that money out to a safer place for retirement before things turns south.


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> In the world of risky investments, leveraged indices are less risky than we think... they may even be optimal.
> 
> This website discusses a paper investigating the returns of leverage : Double-Digit Numerics - Articles - The Big Myth about Leveraged ETFs
> 
> 2x leverage seems to be... historically optimal.


This makes sense to me, because from studying some ETF behaviour in past years, I decided that SSO would be the only vehicle I could handle as a long term buy & hold.


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