Suppose I have an investment account with $10,000 in it. I have a margin rate of 10% per year. For a total of $2.7 interest per day, or $1,000 per year.
I can invest in a high risk ETF with returns of 25% per year, or safer investments that are from 10-15% per year.
I know that if I don't use margin, my investments are a straightforward calculation. If I leverage my portfolio and use margin, then potential profit calculations become more complex.
- Given a margin interest rate of X, and Y dollars on margin, what must my % return be in order to beat the straight non margined investment?
My intent is to prove that buying treasury bonds on margin is probably a bad idea, and figure out how much of my portfolio I should put into an ETF that is likely to beat 15% YOY return
This is not a homework question. The specific funds I'm looking at are EZU, IWC, SCHC, SCHX, SCHA, XLF, and XSD.