If you need an explanation of the risks and benefits of leverage to understand why it might be a good or bad idea for you, then you probably shouldn’t be using leverage. So here’s some data on what happens when you use the Professional Subscription and have access to leveraged instruments or margin.
All performance metrics below assume that you rebalance your account to Your Allocation on the last day of every month.
Performance of 35% Risk Profile portfolio (+L) vs S&P 500
If you’re interested in using leverage, you’ll probably want to use a Risk Profile that has actually historically demanded that you use leverage — otherwise you might as well be skipping the whole Professional Subscription thing. A Risk Profile of 35% is where things start getting interesting for leveraged accounts, and we encourage you to go no lower than this in terms of Risk Profile.
Since 2000, a 35% Risk Profile account plus leverage has marginally outperformed the S&P 500 and — more importantly — taken only a fraction of the possible downside. The maximum S&P 500 allocation over the period was 131.39%. The minimum was 19.21%.
Performance of 50% Risk Profile portfolio (+L) vs S&P 500
Since 2000, a 50% Risk Profile account plus leverage has substantially outperformed the S&P 500, with $10,000 ending at $27,440.62 (174.4% gain), as compared to the S&P 500 at 99.4% gain.
Over the period, the maximum S&P 500 allocation was 217.53%. The minimum was 30.72%. This is probably the Risk Profile that an aggressive investor with 2x overnight margin would be most interested in. When we raise the Risk Profile further, the maximum allocation will continue to rise, and most investors will need to consider buying ITM SPX call options in order to gain enough leverage. This entails an even higher level of sophistication.
Performance of 75% Risk Profile portfolio (+L) vs S&P 500
This portfolio, which only protects against 75% losses, is understandably a “high-risk, high-reward” proposition, and it requires the investor to be able to gain leverage up to a maximum of 415%. Minimum allocation was 58.76%.
Understandably, this portfolio took large losses (>50%) during recessions, though with strategic use of leverage, the portfolio grew to $55,080.61 — a 450% gain compared to the S&P 500’s 99.4%.
Professional Subscribers are encouraged to find their “sweet spot” much the same way as everyone else — there is no limit on how many times you can review different Risk Reports when you sign up. In the case of plus leverage, however, there’s the additional factor of the leverage itself. Be sure that Your Allocation is something that you’re able to acquire and are comfortable with.
Want to look at unleveraged performance? Go here.
Thinking this might be right for you? Check out the Professional Subscription!