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What is the cost of using margin in an account to boost returns by boosting beta? In a margin account you can borrow up to 50% of the purchase price of marginable assets. This allows investors to potentially double the amount of assets they could buy. The risk free rate of return is currently very close to zero (around 0.75%). In theory you could use margin to boost beta to nearly 2.0 and thereby boost your expected return. The biggest problem with this plan is that the co

The Capital Asset Pricing Model (CAPM) derives the expected return for an asset based upon the asset's systematic, or market, risk. CAPM assumes non-market, or unsystematic, risk can be removed through appropriate diversification. If an asset moves the same percentage as the market it has a beta of 1. If it moves proportional but greater than the market it has a beta greater than one and if it moves proportional but less than the market it has a beta less than one. This ca

From 1900 - 2012 house prices increased 3.1% annually while inflation averaged 3%(1). Historically, housing has appreciated just about 0.1% above inflation. Unfortunately, the average property tax rate is around 1.3% across the nation(2), approximately 1% annually is used for house maintenance(3) while around 0.35% annually is spent on home insurance(4). The net result of this is that housing costs approximately 2.64% per year. It actually makes economic sense to minimize

The point at which debt interest rate exceeds after tax investment return is the point at which good debt turns to bad debt. While after tax investment return depends upon risk assumed and overall tax rate, a reasonable assumption for this might be 6%. Mortgage rates are currently below the 6% threshold. Adding in the mortgage interest expense reduction tax benefit reduces the effective interest rate further below the point at which good debt becomes bad debt. As long as you

With a goal of maximizing after tax returns, does it make sense to invest the maximum amount in a 401K or take this money after tax and invest in a taxable account. Investing in a 401K with pre-tax dollars should have advantages over investing post tax dollars in a taxable account. One advantage is that gains in taxable accounts are subject to capital gains taxes. Another potential advantage is if the 401K distribution tax rate is lower than the current tax rate. The disadva