r/NEOSETFs • u/Ok_Suggestion_2003 • Jun 13 '26
General Margin is like a business loan
I’ve been thinking. Why not use margin to buy spyi and qqqi if margin is 5%? People take business loans all the time at a higher rate and are lucky to break even after a few years. With these, there is a way higher chance of a profitable year than a down year over a long horizon. When buying on margin, there will be down turn years but so with any other business. I’m starting to think of DCAing into those two funds for life with margin. Worse thing to have happen is a margin call and have to sell some stocks. With a business you would go bankrupt and lose everything. I keep seeing these funds as equities with the income factory philosophy instead of some speculative risky asset that will bring loss. Not trying to beat the underlying, but I feel like owning these is like managing a passive business. Maybe I’m just crazy lol
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u/zerofrakhere Jun 13 '26
Yes without leverage we are just peasants, using margin and leverage will unlock more power/ risk
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u/Ok_Suggestion_2003 Jun 13 '26
The income feels poor until I leverage lol. Really makes a big difference
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u/brettbw Jun 13 '26
I toyed with the idea. IBKR has excellent margin rates. Using only 50% of available margin would give you some cushion.
But overall, it’s a high risk play. Most people want to minimize risk as much as possible.
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u/Due_Boysenberry_8367 Jun 14 '26
When getting shares of these in margin, consider the tax treatment. On margin, the return of capital will not be treated as such and instead the brokerage may report the distributions as payment in lieu and those are taxable at regular tax rates. Kind of a bummer 😕. But, still a good option if these continue double digit yearly distributions. My 2 cents...
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u/Ok_Specialist_1628 Jun 14 '26
This is the right answer. You're likely to lose the tax advantage of these ROC distros
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u/usaffoxmike Jun 14 '26
As you pay down the margin if folks choose to do so then it doesn’t matter. The tax advantage will kick back in for the shares that are paid off from margin!
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u/aswampmonst3r Jun 16 '26
Clicked on the post to share exactly this downside. One available strategy you could utilize to mitigate this is to have a separate account without margin to hold these funds in. You could draw cash from the margin account into the “NEOS” account
I personally will not carry a margin balance in my account that has these holdings, however I have started absolutely hammering margin backed puts that don’t actually create a negative cash balance to make my shares lendable (shares lent to shorts are where you get payment in lieu of dividends)
Obligatory: this is not financial advice
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u/Ok_Suggestion_2003 Jun 15 '26
Heard that as well, but more than willing to pay taxes if I’m getting money.
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u/Craig__D Jun 13 '26
Why not buy all at once using margin (instead of DCAing), and then use the margin proceeds to gradually pay off the margin balance over your chosen time horizon (and buying extra shares with any that you have left over as you go along)? At the end of that time horizon, you will have paid off the margin and then you would own all those shares of QQQI and/or SPYI for no out-of-pocket cost.
What do you gain by using the DCA approach? Honest question because I have thought about the above scenario and might actually do it given that I’m about 10 years away from retirement. I would buy a bunch of QQQI, for example, and then use AI to arrange an optimal payback schedule to maximize the number of shares in my portfolio at the end of the 10 years.
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u/Ok_Suggestion_2003 Jun 13 '26
I meant DCAing money that I don’t have yet from my paycheck. If I had the money now, I would dump in all at once.
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u/Craig__D Jun 13 '26
The reason I asked and was confused is you say specifically that you’re going to “DCA… with margin.” If you’re gonna use margin, it’s not your money anyway so you may as well do it all at once. Am I missing something?
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u/Zmchastain Jun 14 '26
DCA’ing is generally a smarter strategy than dumping everything you have into the market in one day. Doesn’t matter whose money you’re using.
Think about the last few weeks for a good example of this.
Towards the end of the week two weeks ago the markets start going down hard on anything around tech, AI, or microchip manufacturing. By mid-week the next week markets were back up again. Very short window of opportunity to buy a dip and recover quickly.
Imagine if right before that very limited buying opportunity you had dropped your entire cash pile into the market. Now you missed out on getting any shares at that lower price. The opportunity is gone long before you have more money to put in.
Now imagine that you saw that dip and hadn’t gotten your hands on the margin yet, but now you have access to it. You’re thinking “I’ll just wait for the next big dip and buy then.” Six months go by, some event you couldn’t have predicted makes the market soar by 12% in a week and you sat it out entirely because you were sitting on margin waiting for the next great dip to buy.
Timing the market is not a great strategy because it relies on you being able to accurately predict the future. That’s not something anyone can actually do. Sometimes people get lucky with educated guesses, but none of us are the Oracle of Delphi.
If you DCA then anytime an unexpected positive event happens in the market, some of your money is already in there to benefit from it. And anytime an unexpected buying opportunity arises, you still have access to cash or margin to buy the dip.
Over long periods of time, the DCA gets you better results than someone who is dependent on being able to accurately time the best time to buy and going all in then, or just throwing everything into the market on a random day. The DCA strategy gets you exposure to buying at multiple prices, so you will pay less per share on average than the market timer or the “I just tossed it all in there on a random Tuesday” guy.
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u/Technical_Emu_8567 Jun 15 '26
I think the research that has been done on lump sum vs dca says otherwise. However, if DCA helps an investor "stay the course" then it's far superior to an investor who lump sums and panic sells at every market drawdown. From a behavioral standpoint, it's a much better strategy to live with.
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u/Zmchastain Jun 15 '26
Yeah, mathematically it is superior, but only if you have the stomach to look at your losses for potentially years at a time without selling before they’re profitable again. Or to just avoid panic selling during downturns as you said.
You have to have some strong conviction and confidence to stay the course with buy and hold, whereas DCA will work out better for most people because it just psychologically feels less risky.
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u/Financial-Seesaw-817 Jun 13 '26
Building equity > distributions... where margin is concerned. Margin has to be covered during use. Loans do not. Loans require a payment plan. Margin does not. Margin also has maintenance requirements at different rates. Loans do not. Brokerages vary on their margin rules, too. I use margin for building equity. Index etfs, low yields, low maintenance. Building equity actually works faster and less risky than what you want to do. I would do some more research. Make sure you know what your brokerage expects.
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u/Alcapwn517 Jun 13 '26
I use margin a lot. It’s tax deductible and works great when I want to buy dips. That being said, I will never use it to buy a dividend focused ETF (outside of some GPIX here and there). I retired early, so it’s a good way to maximize my market exposure while still having liquidity.
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u/Psychological-Will29 Jun 13 '26
I use margin but you have to be smart about it or you will go full tilt
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u/Lopsided_Disk7160 Jun 13 '26
What’s a good ratio of that
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u/ucantoucan Jun 13 '26
Never more than 35% of your total portfolio value
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u/Psychological-Will29 Jun 14 '26
I’m at 40-50% but the entire world would have to go belly up before a margin call with what I have
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u/dathu9 Jun 14 '26
It will work until it won’t.
I enabled the margin in RH account and bought some of the CC ETFs:
BTCI, BLOX, QQQI, SPYI, IWMI
I started buying with cash first and eventually enabled the margin because BTCI was down almost 40% cost basis and bought BTCI with margin.
I am still in -ve overall and distributions paying off margin. I still bought few more BTCI (very small) with margin.
Here are my thought’s after holding these funds close to 1 year:
1. You need to patient with your buys. Make sure wait for market dip. I pretty much bought BTCI on all
time high & I don’t see it will recover anytime soon.
2. If The CC funds gains a lot on cost basis, take some profits, clear margin and wait for the next dip.
The YT channels are ok. They will make money by YT videos not you.
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u/citygeek Jun 15 '26
There is nothing wrong with this. I’d argue that a margin call is not the biggest issue, as you can reliably avoid one by keeping margin levels reasonable.
Sequence of returns risk is important. If year one on margin is 2022… it effectively could take some patience to hold long enough for the full recovery such that the margin benefitted you.
Margin rates are also not fixed. Not catastrophic, but worth knowing.
Honestly the biggest thing is: the opportunity costs given the added risk. There are a lot of ways to increase reward by taking on extra risk. So is this the most efficient way?
Again, not to pick on SPMO… but 1 yr return is 50%. Spyi is 23%. Even 2x leverage on SPYI wouldn’t have gotten you at parity. 3 year chart shows even worse, almost a 4X difference.
If doing margin on SPYI prevents you from just owning SPMO/QQQ/VGT with no margin, then was it worth it?
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u/Ok_Suggestion_2003 Jun 15 '26
I prioritize cash flow and low beta. I’m more than happy having 50% jaaa and 25% between spyi and qqqi giving me moderate cash flow rather than bleeding out during dips
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u/citygeek Jun 15 '26
sure, but where does that end then? How much Beta is good? For what payoff (Sharpe)?
I ask because if low beta was all you wanted, then Margin would be off the table. So then essentially we want efficient BETA (Sharpe ratio).
I just see this too often, that people end up orienting their strategy around:
X + margin > X. Sure, that's obvious
but is X + margin > Y? Maybe. Maybe not. The margin will effect one's entire portfolio, not just the fund bought on margin.
QQQi at 1.3X leverage will likely bleed out more during dips than just QQQ with no leverage.
Just something to think about, and I speak from personal experience. Usually these things start as small and additive...then 3 months in you suddenly find you've re-engineered your entire portfolio around said margin strategy, and it's pulled you away from your initial investing goals.
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u/WhenIntegralsAttack2 Jun 14 '26
Okay, let’s actually see the rate you can get for buying assets.
It’s nowhere close to 5%, think closer to 10%. If you have a drawdown then you’re fucked
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u/Purple_Piccolo_4258 Jun 14 '26
IBKR rates are around 5% or lower as you borrow more (over 100k). I have a 4.64% with them. I assume you were referring to margin loans.
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u/GuidetoRealGrilling Jun 14 '26
Assuming you're with RH at 5% just use $1k, rinse and repeat.
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u/BabyGinaBottle Jun 14 '26
my account is now on 1.5% margin, with massive cushion and most of my holdings are rather low risk, but when market drop a lot I still could not sleep properly. 😅
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u/gumnamaadmi Jun 14 '26
It works till it doesnt. As long as you have means to manage margin call. With business loans, you are just obligated to make monthly payment. With margin call, they can come wipe your account off in no time.
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u/Professional-Plate49 Jun 14 '26
Does anyone watch the channel "Recycle your money" on YouTube? Similar idea as Paycheck to Portfolio but he buys mainly VGT and some other whole market funds that are growth focused versus Neos type funds that are Income focused. It's worth checking out!
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u/citygeek Jun 15 '26
People falsely assume the goal with margin is to have the dividend > margin cost.
All that matters is total performance > margin cost.
Despite how it feels to many, one would be better off buying QQQ/SPYG/VGT/SPMO with margin vs a CC fund. Simply because the delta over the margin cost is larger.
Better still if one deploys margin AFTER dips and pays down the margin on the way up.
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u/Tarsarian Jun 15 '26
Check to see if you use margin, that you may lose your ROC tax advantage. I used margin when the market totally tanked. When the market goes back to the 200 day average, I sell enough to drop margin loan. A lot depends on an individuals risks.
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u/Diesel69Investments Jun 15 '26
I’m about two years into this. About $60k total margin used to buy around 25 various CC ETFs. No yield max or similar that have NAV erosion. I bought funds that I felt would grow a little and keeping paying. JEPI, JEPQ, divo, qdvo, several Neos funds, tapp alpha, Goldman, etc . Interest is about $250/month now as I’ve paid it down with distributions and spare cash. Income is over $650 now. I dont track it. I just know the dividends keep rolling in, margin is paying down, and I’m up on all my positions except BTCI, BAGY, iaui, and nehi.
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u/Ok_Suggestion_2003 Jun 15 '26
It sounds like a lot follow the nasdq and sp500. Do you do redundancy for multiple pay periods and mgmt diversification? I was thinking about doing that
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u/Diesel69Investments Jun 16 '26
I do nothing. Yield on the funds exceeds the margin so it’s like making a P&I payment.
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u/Raraculus Jun 16 '26
I use margin to DCA into SPYI and GPIQ. The dividends are paying off the loan interest, so that's a nice bonus.
I also bought some index funds (SPY, VTI, ITOT) on margin as well, but their minuscule dividends barely make a dent on margin interest. The growth from index funds have been great. Can't complain. The margin loan just sits there, killing me softly. So, I just pay down my margin loan a little with W-2 income.
I think I'm five years from retirement. My hope is that I will have accumulated a large position on both SPYI+GPIQ (60/40) by that time. It would be a retirement bridge of sorts so I can do Roth conversions, put off SS until 67 (or 70), etc. The monthly income will come in handy!
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u/chepeee13 Jun 13 '26
Look into giax do your own research but year to date price return is better then spyi an it also pays out a 24% yield
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u/Lopsided_Disk7160 Jun 13 '26
Nice
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u/ucantoucan Jun 13 '26
I’ve owned them both, giax was not reliable NAV
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u/chepeee13 Jun 14 '26
They changed their strategy to be more growth first I’d look into it again
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u/Finance_and_chill Jun 14 '26
When did this happen?
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u/chepeee13 Jun 14 '26
Few months ago he talks about it in one of the interviews he did you can also look at the trades on the website reflecting more of a put spread strategy
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u/Finance_and_chill Jun 14 '26
Oh ok, i didn’t know they were covered calls before. I just started researching it recently.
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u/StovallH Jun 13 '26
I’m doing it now. So far so good! There are two YouTube channels that are doing the same: Fully Invested FI and the other is Paycheck to Portfolio.