What’s wrong with buying and holding the SPX500?

Discussion in 'Trading' started by iamnewuser911, Nov 22, 2017.

  1. srinir

    srinir

    Exactly. If SP500 ETF is held till retirement and if the retirement income is pretty low in one year it can be tax free (long term tax rates varies from (0%,15% and 20% based on their bracket)
    Another point i forgot to mention, one could do tax loss harvest every year in ETF, which saves about $3000 in deduction.
     
    Last edited: Nov 23, 2017
    #31     Nov 23, 2017
  2. srinir

    srinir

    No in IRA, both ES and SP500 ETF is treated same
     
    #32     Nov 23, 2017
  3. Visaria

    Visaria

    Ok but i would have thought the freeing up of so much capital by using futures instead of etfs, could be used to make investments elsewhere which would more than offset the tax differentials.

    In fact, this is a strategy I already deploy...I bought dow and nasdaq futures (which my broker rolls over automatically) rather than es and with the rest of the capital i am free to make bets on other commodities and stocks.
     
    #33     Nov 24, 2017
  4. newwurldmn

    newwurldmn

    Freeing up the capital in a buy and hold is meaningless because the spx will selloff requiring you to post a lot of capital to sustain the margin call.
     
    #34     Nov 24, 2017
  5. Visaria

    Visaria

    What sell off?

    But that is fine, can either use the cash that has not been used elsewhere or sell some other assets if it has.
     
    #35     Nov 24, 2017
  6. newwurldmn

    newwurldmn

    Typically the SPX sells of 8-10% a year and then recovers. So you have to have enough margin to satisfy that. You can margin SPY in a Reg T or PM account 20% of the notional which kind of covers this typical selloff. The ES margin of 4% will almost certainly require a margin call several times a year. So how much capital do you really need to protect the position if 20% is too much?

    If the extra margin capacity is worth 20%+ (being EXTREMELY generous on your tax rates) of your annual gains (compounded) then you should go the route of using the ES as a long only proxy. For everyone else, it's better to own the SPY.
     
    #36     Nov 24, 2017
  7. it's the sweetest market of all! I'm in love with it. Saved me from having a 'real job'
     
    #37     Nov 24, 2017
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  8. srinir

    srinir

    Then this is apples and oranges, when the comparison is made for buy and holders regarding ES vs SP500 etf. This is different than what OP wanted, What do you describe is the use of leverage. I also do some what similar.

    For purpose of this thread, we have to then compare levered SPY vs ES. This is similar to comparing margin rate between broker and implicit interest rate of ES. Current ES implicit interest rate is around 1.65% and cheapest margin rate is 2%+. This is where future and option excels. (you already know this, just added this for some newbie like OP)

    I am not sure in US broker's do automatic roll of futures unless if they are full service brokers, then commissions will be far higher.
     
    Last edited: Nov 24, 2017
    #38     Nov 24, 2017
    Visaria likes this.
  9. ironchef

    ironchef

    There is no step-up in IRA.
     
    #39     Nov 24, 2017
  10. Visaria

    Visaria

    Ok....iv no idea what that is...dont want to know either.
     
    #40     Nov 24, 2017