Leverage

Our optimization can tell us that we need to invest more than 100%. The way to do that is by introducing leverage.

There are a variety of instruments to introduce leverage into our portfolio, in order of preference:

• Futures on assets
• Options on assets (deep in the money or synthetic long)
• Box spreads
• Leveraged ETFs
• Broker margin
• Mortgage
• Personal loan

Leverage costs the risk free rate plus an extra spread of 0.5% to 5%.

It is important to be able to absorb any losses, margin calls etc. Be very careful when using leverage.