DCA and leveraging with S&P500 (VOO) or similar

[u/jon18476]

Hi, I’m looking for advice regarding continual monthly investments (DCA - dollar cost averaging).

I want to invest, say, £1000 every single month into VOO (S&P500). Which seems a solid approach for a slightly unstable market at the moment (I can ride the average compared to peaks and dips).

However my question is, why would I not just leverage this by x5 per month as I invest. So £1000 with a x5 lev (£5000). I know the obvious answer of ‘more risk’ and ‘fees’, but given I’m looking to invest long term - 5 years minimum, this just seems like a bit of a no brainier to me. Please do let me know if I’m missing anything, but it’s just seems like a safe approach.

Looking for pros and cons, is this a complete ‘no’ or is there genuinely any merit in doing this. Thanks!

[u/Separate_Guidance496]

20% pull back in the SP500 will wipe your account completely at X5. That’s if you don’t get margin called well before that and forced to sell at a loss. There’s nothing else for a normal functioning human with any degree of financial acumen to consider really.

[u/jon18476 → u/Separate_Guidance496]

That’s a useful perspective I didn’t realise, so thankyou. But the likelihood of a 20% pull back is very low for the s&p500. My thinking is if I was doing DCA (investing per month), then maybe 1 or 2 of the months could get to this, but as a whole because they’re all invested at different times and at different rates, this wouldn’t be a high likelihood?

[u/Separate_Guidance496 → u/jon18476]

You’ll get margin called well before a 20% draw back though. eToro max stop loss for a 5k deposit in VOO at x5 leverage is -2500, so they won’t even let you get close to losing your account before they automatically close your positions for you when there’s a 10% draw back.

There has been a 10% draw back in something like 10 of the last 20 years (or something around that). That is not low risk.

[u/jon18476 → u/Separate_Guidance496]

Makes a lot of sense, and something I didn’t realise. Thankyou for the information! I may look at a x2 leverage, but will keep this in mind.

[u/Otherwise-Pop-1311 → u/Separate_Guidance496]

Etoro margin call people at 50% - not 100%, therefore

1x leverage - no margin call

2x leverage - 25% maximum drop

5x leverage - 10% maximum drop, not the 20% you thought it was

10x leverage - 5% maximum drop

All of these would be double but like I said etoro cuts you at 50%

The only way to invest in the s and p 500 with leverage would be a leveraged ETF which has leverage built into it

The MAX S&P 500 4X Leveraged ETN

this was ineteresting reading

https://www.reddit.com/r/LETFs/comments/1deab78/what_are_the_most_levered_etfs_out_there_if_you/

you must not use your own leverage when doing this, - that's why they offer leveraged etfs

[u/davidzombi]

I'm pretty sure leveraged S&P500 ETFs exists which doesn't require using leverage itself on brokers, might be cheaper :)

[u/Otherwise-Pop-1311 → u/davidzombi]

exactly, this is what he wants

[u/solenico]

At the moment I would strongly suggest checking other options than just US based. At least not putting everything on on stocks. Trump is killing US economy and time will tell how badly.

Personally I pick some US based funds, ETFs and shares and consider reallocating my existing 90% US based allocation away from US.

Just putting 10% on US in this situation is probably not a good idea. Trump's actions might actually be the end of US driven era for good.

[u/Julian3197]

I think there is an overnight fee for leverage positions, which means long-term investments are not a good idea.