This is a brief response, so please don’t rush intemperately into things before understanding what you’re doing on the basis of any of this. For general finance information, especially about low-fee index investing, I recommend Bogleheads (the wiki and the forum):
For altruistic investment, the biggest differentiating factors are 1) maximizing tax benefits of donation; 2) greater willingness to take risks than with personal retirement, suggesting some leverage.
Some tax benefits worth noting in the US:
1) If you purchase multiple securities you can donate those which increase, avoiding capital gains tax, and sell those that decline (tax-loss harvesting), allowing you to cancel out other capital gains tax and deduct up to $3000/yr of ordinary income.
2) You can get a deduction for donating to charity (this is independent of and combines with avoiding capital gains on donations of appreciated securities). But this is only if you itemize deductions (so giving up the standard deduction), and thus is best to do only once in a few years, concentrating your donations to make itemizing worthwhile. There is a cap of 60% of income (100% this year because of the CARES act) for deductible cash contributions, 30% for donations of appreciated securities (although there can be carryover).
3) You can donate initially to a donor advised fund to collect the tax deduction early and have investments grow inside tax-free, saving you from taxes on dividends, interest and any sales of securities that you aren’t transferring directly to a charity. However, DAFs charge fees that take back some of these gains, and have restrictions on available investment options (specifically most DAFs won’t permit leverage).
Re leverage, this increases the likelihood of the investment going very high or very low, with the optimal level depending on a number of factors . Here are some discussions of the considerations:
My own preference would be to make a leveraged investment that can’t go to a negative value so you don’t need to monitor it constantly, e.g. a leveraged index ETF (e.g. UPRO, TQQQ, or SOXL), or a few. If it collapses you can liquidate and tax-loss harvest. If it appreciates substantially then donate the appreciated ETF in chunks to maximize your tax deduction (e.g. bunching it up when your marginal tax rate will be high to give up to the 30% maximum deduction limits).
E.g. the VIX, a measure of stock market volatility (and risk plays a role in formulae for leverage) is above 30 right now, close to twice the typical level. Although that’s a quantitative matter, and considering future donation streams (which are not invested), pushes towards more (see the book Lifecycle Investing). But people shouldn’t do anything involving leverage before understanding it thoroughly.
Does it make sense to combine leveraged standard stock ETFs (UPRO, TQQQ, SOXL, TECL) with leveraged bonds (TMF, TYD; these are US treasury bonds) and leveraged gold (UGLD)? The bonds and gold can reduce your risk and maximum drawdown, although I suppose your overall long-term returns will be lower, while higher than the same portfolio without leverage. UPRO lost 75% to the bottom of the pandemic loss, and is still down 50%, from February 19. If you’re relatively risk-neutral and investing long-term with this part of your portfolio, maybe it makes sense to just skip the bonds and gold (in this part of your portfolio)?
It reduces their value compared to a theoretical benchmark, not compared to investing in the same things without leverage over the long run, although the gap is smaller than you’d expect and you’re taking on more risk. Also, there are the management fees with leveraged ETFs, too.
Not rebalancing frequently seems riskier if you’re using leverage, since you can go negative.
This is a brief response, so please don’t rush intemperately into things before understanding what you’re doing on the basis of any of this. For general finance information, especially about low-fee index investing, I recommend Bogleheads (the wiki and the forum):
https://www.bogleheads.org/wiki/Main_Page
For altruistic investment, the biggest differentiating factors are 1) maximizing tax benefits of donation; 2) greater willingness to take risks than with personal retirement, suggesting some leverage.
Some tax benefits worth noting in the US:
1) If you purchase multiple securities you can donate those which increase, avoiding capital gains tax, and sell those that decline (tax-loss harvesting), allowing you to cancel out other capital gains tax and deduct up to $3000/yr of ordinary income.
2) You can get a deduction for donating to charity (this is independent of and combines with avoiding capital gains on donations of appreciated securities). But this is only if you itemize deductions (so giving up the standard deduction), and thus is best to do only once in a few years, concentrating your donations to make itemizing worthwhile. There is a cap of 60% of income (100% this year because of the CARES act) for deductible cash contributions, 30% for donations of appreciated securities (although there can be carryover).
3) You can donate initially to a donor advised fund to collect the tax deduction early and have investments grow inside tax-free, saving you from taxes on dividends, interest and any sales of securities that you aren’t transferring directly to a charity. However, DAFs charge fees that take back some of these gains, and have restrictions on available investment options (specifically most DAFs won’t permit leverage).
Re leverage, this increases the likelihood of the investment going very high or very low, with the optimal level depending on a number of factors . Here are some discussions of the considerations:
https://mdickens.me/2020/06/21/samuelson_share_predict_optimal_leverage/?fbclid=IwAR1E7WTtv3KAajK_bjlZc_49YbZB5MkK97RJc74qcC9urkgAEsKB0KIjYjw
https://reducing-suffering.org/should-altruists-leverage-investments/
https://forum.effectivealtruism.org/posts/g4oGNGwAoDwyMAJSB/how-much-leverage-should-altruists-use
https://docs.google.com/document/d/10oDwoulY6jR01ufewyO3XOQvA85Yys7LXWgTUrJt980/edit#heading=h.gl3bx4art973
My own preference would be to make a leveraged investment that can’t go to a negative value so you don’t need to monitor it constantly, e.g. a leveraged index ETF (e.g. UPRO, TQQQ, or SOXL), or a few. If it collapses you can liquidate and tax-loss harvest. If it appreciates substantially then donate the appreciated ETF in chunks to maximize your tax deduction (e.g. bunching it up when your marginal tax rate will be high to give up to the 30% maximum deduction limits).
In the US, it’s now up to 60% of income that can be donated as cash with a tax deduction.
Thanks, edited.
It’s actually 100% for 2020 due to the CARES Act!
Also, it might be worth waiting until the pandemic situation is clearer or passes before leveraging.
E.g. the VIX, a measure of stock market volatility (and risk plays a role in formulae for leverage) is above 30 right now, close to twice the typical level. Although that’s a quantitative matter, and considering future donation streams (which are not invested), pushes towards more (see the book Lifecycle Investing). But people shouldn’t do anything involving leverage before understanding it thoroughly.
Does it make sense to combine leveraged standard stock ETFs (UPRO, TQQQ, SOXL, TECL) with leveraged bonds (TMF, TYD; these are US treasury bonds) and leveraged gold (UGLD)? The bonds and gold can reduce your risk and maximum drawdown, although I suppose your overall long-term returns will be lower, while higher than the same portfolio without leverage. UPRO lost 75% to the bottom of the pandemic loss, and is still down 50%, from February 19. If you’re relatively risk-neutral and investing long-term with this part of your portfolio, maybe it makes sense to just skip the bonds and gold (in this part of your portfolio)?
Leveraged ETFs are meant for short-term investing I believe—they’re rebalanced daily which reduces their value over time.
It reduces their value compared to a theoretical benchmark, not compared to investing in the same things without leverage over the long run, although the gap is smaller than you’d expect and you’re taking on more risk. Also, there are the management fees with leveraged ETFs, too.
Not rebalancing frequently seems riskier if you’re using leverage, since you can go negative.