FIRE with a margin loan

[Max]

I have found an article suggesting that it should possible to finance one fourth (1% out of 4%) of the SWR through an IB margin loan. Which means that one can take merely three fourths of expenses for the success calculation.

The weakness of the article (which even I can see) is that no Monte Carlo simulation was performed. The author used only the historical path for two starting points: 1965 and 1929.

I have asked the author about conclusions in practical terms, but there is no answer (yet).

 

[Baptiste Wicht]

That's an interesting article indeed.

I think the technique itself is quite interesting, but needs to be studied more. The problem is that we lack data on margin loans interest rate to do a full simulation. And I agree that looking at two cohorts is not enough. I think he did that because that's the worst cohorts. But maybe I am missing something.

Also, this requires timing. You don't keep the margin loan all time, only when some market conditions are met.

 

[Max]

AFAIU, part 49 describes margin loan use without timing. And part 52 describes margin loan use with timing as an improvement of part 49.

 

[Max]

Well, I obviously strongly overestimated the effect. The author says, the margin loan use allows to increase the SWR from 3,8% to 4%.

 

[Baptiste Wicht]

Well, I obviously strongly overestimated the effect. The author says, the margin loan use allows to increase the SWR from 3,8% to 4%.

That does not sound much for the added complexity of a margin loan.

Also, keep in mind that ERN generally focuses on a failsafe withdrawal rate, so maybe you can reach higher levels if you allow for a small probability of failure.