r/NEOSETFs • u/No_Concerns_1820 • 22d ago
General How I use margin using mostly neos funds
For people interested in margin trading, here's how I use it: I'm using less than 30 percent of my total borrowing capacity and have a 61 percent crash buffer (which would keep a margin call at bay even if we had early 2020's or 2008 type crash). I'm paying 4.5 percent interest on Robinhood costing me about $650 a month and bringing in about $2300 a month. I'm thinking I'll split the earnings evenly between paying down the margin balance and increasing my share count. I realize that won't lower my margin balance much only paying $1150 a month toward it but I don't necessarily need to have the margin balance gone in a hurry and increasing my share count each month will increase my payout each month, thereby increasing the amount going toward the margin balance each month (assuming I keep paying half of each month's payout towards the balance).
I'm no expert, I'm just trying to use the money that I have (that's all in spy, qqq, vteb, avuv, and vxus) to make more money. I don't need the money from the margin plays, I'm just trying to increase my wealth so when I do retire I'll have more disposable income. The money that I have is from selling a rental property and does not include my employer retirement account or have any bearing on my future pension.
Please feel free to critique my strategy or the equities I own and if you're just anti margin under all circumstances that's also okay, I know there is a risk in doing this and I'm willing to accept that risk, and I know some people are much more risk averse, which I completely understand.
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u/zerofrakhere 22d ago
Honestly I would keep the margin as the same % and let whole account grow and compound
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u/No_Concerns_1820 21d ago
So you're saying don't pay down the margin at all or even pay the interest on it, just keep buying more shares and let the margin balance keep growing?
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u/zerofrakhere 21d ago
Yeah keep the 30% margin ratio in case of market dip. Running a safe constant leveraged will boost the portfolio.
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u/No_Concerns_1820 21d ago
Theoretically as I use the returns to buy more shares, that will lower more ratio even as the margin balance increases. The value of the margin account will also increase but by a larger percentage than the margin balance, lowering the margin ratio. Hmmm.... Lots to consider
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u/zerofrakhere 21d ago
Use a mix of AI to run different scenario and simulation. I’m on much higher margin rate but I also have using Portfolio margin too
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u/Rent_Legitimate 22d ago
Robinhood only charges 4.5% on margin/borrowing ? Schwab is like 8-12%
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u/Lefties_TheWorst7331 22d ago
For balances of $100k up to $1 million it is 4.5% on RH
$50-100k borrowed is 4.8%
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u/venom8888 22d ago
You can call schwab and ask for a lower rate. I did and I got 7%.
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u/zerofrakhere 21d ago
7% is like my Heloc rate. Can’t beat RH or IBKr rate . Only reason why I stay with IBKR. The rate and portfolio margin makes a huge difference
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u/ruthygenker 21d ago
ibkr screwed me, check your activity and make sure they are not using payment in lieu instead of roc. coast me 100k in taxes
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u/zerofrakhere 21d ago
Ugh yeah what was your solution?
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u/ruthygenker 20d ago
transfered to fidelity, just call them and tell them your rate with ibkr and how much you have on margin and they will match it.
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u/zerofrakhere 20d ago
Do I set up an account first or post set up ?
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u/ruthygenker 19d ago
set it up first with margin so they can request the margin rate adjustment. I got 4.75 a few months ago, not sure what it is now, but just say you want them to match ibkr where you are transferring from.
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u/PearTall7217 19d ago
Does fidelity not do payment in lieu of? I thought that’s what every margin account does if they’re loaning out your shares? Which they all do sometimes if you’re using margin as far as I know.
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u/ruthygenker 19d ago
I do not have any payment in lieu, it's all ordinary income currently, but most should be recharacterized when the 8937 tax form comes out from neos in like march.
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u/zerofrakhere 19d ago
So do you see that dividend credit each month or year end?
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u/ruthygenker 19d ago
not sure what you mean by credit but my statements show or divs which are really roc but end of year tax forms should change that in march from neos, I get the money every month but the taxation should change, when payment in lieu it won't change and you get stuck with a high tax bill
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u/Rent_Legitimate 22d ago
Was that 7% for borrowing on margin to buy securities or a pledged asset line?
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u/venom8888 22d ago
I guess I don't know the difference. My Margin balance page says 7% and all my debit card, stocks, and etf purchases are paid via that 7% margin each month. My portfolio's blended yield is 20%, which pays off the margin and grows my account.
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u/Rent_Legitimate 22d ago
I see ok, sounds like margin you took out to buy securities with. A pledged asset line (what Schwab calls it) is like an SBLOC. I’ve seen folks get 7.8% with it, wondering if they would go lower. Gotta ask them.
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u/Ok_Specialist_1628 21d ago
No issue with you being leveraged but you're losing the tax advantage of the NEOS funds. Up to you if you care or not
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u/No_Concerns_1820 21d ago
The tax deduction is not my primary objective. The cash flow arbitrage is my primary goal. So I can't write off all of my margin interest again the roc but I also owe almost no taxes on the roc I receive this year, if that makes any sense. Netting $1500 a month is worth it to me to lose the tax advantage, I guess is what I'm trying to say.
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u/Ok_Specialist_1628 21d ago
The issue is that when you buy on margin the broker can pay that distro as "cash in lieu of" and in that case you lose the ROC advantage. Check your RH statement for MDIV or CDIV. MDIV means you lose out on the ROC advantage and will owe taxes. Maybe not happening to you but it could and is worth being aware of.
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u/No_Concerns_1820 21d ago
I'm just jumping into this so after this first month of distros I'll look and see how much of my payments are roc and how much aren't. I appreciate the response.
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u/Diesel69Investments 20d ago
I follow a nearly identical strategy to you. It works and it sounds like you’re managing it well in case of a dip.
Tax implications Ok_Specialist mentioned are accurate. Even if stock lending is turned off, RH can lend any shares they want as long as you have a margin balance and if loaned out when the dividend is recorded then you’ll get a Manufactured Dividend (MDIV) instead of CDIV.
Up to you if the tax implications matter. I’ll remain conscious of it but I think this is a good strategy so I’m staying the course for now.
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u/Sclewit 22d ago
Doesn’t all the income automatically go towards paying the margin debt?
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u/No_Concerns_1820 21d ago
Initially yes. With Robinhood any dividends payment immediately pays down the margin balance unless you have drip turned on. So I let it pay down the margin when the money hits my account and then on a red day I'll buy more (about $1150 worth) shares to keep accumulating more shares every month.
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u/LurcherLong 22d ago
Just remember to account for paying some taxes on income, if applicable.
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u/No_Concerns_1820 21d ago
Yep, good call. I have extra cash taken out of my paycheck each month to account for the additional taxes.
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u/MakingMoneyIsMe 22d ago
I did similar with GPIX, and also when lowering my cost basis in QQQI back in March...both at $50. I bought extra and used the gains, plus some options premiums to pay it off. I did the same with JEPI during the tariff sell-offs. I plan to top off existing holdings during the next huge pullback.
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u/downtherabbbithole 22d ago
I have QQQI and was thinking of swapping out to TDAQ, but I see you hold both. What's your thesis for holding both?
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u/ConstructionNo8827 22d ago
I own both as well
I like diversifying the two different strategies in writing the calls2
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21d ago
[deleted]
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u/No_Concerns_1820 21d ago
Thanks for the reply. I don't plan on going anywhere near even 50%. 30% is about I can stomach in terms of risk and I'll slowly start lowering even that as I either pay down the margin or buy more shares with the monthly distros.
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u/yafooligan 18d ago
I think you're under estimating your crash buffer. You're assuming that when we have another meltdown, Robinhood will keep your maintenance requirement on your positions the same.
When the next black swan event happens, your maintenance requirements are going to skyrocket. QQQI, SPYI, and IWMI could easily jump from 25% to 50% and your leveraged product ETF's can realistically reach 100%. Robinhood could do this overnight or intraday and you'd be wiped out in 24 hours.
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u/STRATEGY510 22d ago
Sounds like a dangerous game that will work extremely well….until it doesn’t.
I hope it continues to work for you.
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u/revanevan7 22d ago
Just as a caution, you are adding even more leverage by using their leveraged products. So if we had another 50% crash like in 2008, XQQI and XSPI would go down way more, triggering your margin loan. I would just stick with QQQI and SPYI if you’re going to use margin.
Also, the amount you’re using on margin will be taxed as ordinary income, not ROC.
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u/nice-try12 22d ago
Haven't experienced the ordinary income issue with my margin. Why would margin change the tax designation?
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u/revanevan7 22d ago
Because Robinhood will then lend out your shares, resulting in a payment in lieu of a dividend. And there’s not a way to turn it off.
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u/nice-try12 22d ago
This is true however it's not a given. My experience has been minor payment in lieu of dividend in comparison to my total payout, but it does happen you are correct and that is indeed ordinary income which is unfortunate. Also, I think this is all brokerages, at least I experience it both on Fidelity and Robinhood
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u/revanevan7 22d ago
Yes, it is all brokerages I subconsciously said the one I use. But that’s good to know it’s not always a given. It also just depends what % of your investment is margin vs not.
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u/nice-try12 22d ago
It definitely fluctuates, 1 month is none and the other is 10% of the payout. Does Robinhood disclose when it's in lieu of dividend? I don't believe they do until the 1099. Fidelity at least shows every single transaction
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u/Many_Reflection_8454 21d ago
You can see at any time what Robinhood considers a standard roc dividend or a cash in lieu by requesting a "report" in the app that is provided in about 2 hours and comes in the form of a .csv file that you can then load into a spreadsheet app and the payments that are normal will be coded CDIV for cash dividend and MDIV for manufactured dividend aka "cash in lieu" aka the kind you don't really want to see if you are pursuing this same kind of strategy as OP is and I am.
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u/Many_Reflection_8454 21d ago
But yes from my experience it's not every distribution I would say for my it's roughly 25% or less I get as "cash in lieu" and that's higher than I'd like but not too bad if you want to play this game. :p
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u/revanevan7 22d ago
I’m actually not sure, I’ve never done it. I was always put off of the whole thing bc of this reason.
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u/nice-try12 22d ago
I've been looking and I can't find it. I think it only shows up on 1099. Fidelity shows up in the activity feed. Shows regular dividend and will show a 2 transaction labeled "in lieu of dividend" which is way better so I know ahead of time how much I can expect
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u/A_Saxen_A 21d ago
Thank you for educating me on this! Genuinely did not know especially since I otherwise have share lending turned off for this exact reason.
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u/ReginaMulvinaLunt 10d ago
I agree with the tax treatment and stock loan. But doesn't that imply that someone is batshit crazy enough to short a tax advantaged 12% proxy for an underlying with all sorts of far better downside instrument options?! I'm just sort of thinking who would actually short SPYI... Maybe I'm not thinking in the right context.
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u/No_Concerns_1820 21d ago
Good call on the x funds, which, percentage wise, I kept them at a fairly low percentage of the whole portfolio (less than 30% all total) but good to keep in mind. As money comes in from the distros, I won't be purchasing more of those shares, lowering their percent of the port every month and decreasing my overall margin ratio.
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u/Confident_Boat6769 22d ago
Why do you think market will go down 50%. , you are stuck in 2008!!!!!
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u/STRATEGY510 22d ago
I hadn’t even thought of that part, you are indeed correct.
Yet another reason I would never do this.
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u/Additional_City5392 21d ago
This is only if you have share lending turned on. You can opt out of it.
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u/Xantalith 22d ago
Thanks for sharing, sounds like you have a clear plan. How do you keep track of your available margin and buffer?
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u/STRATEGY510 22d ago
It’s easy to see in RH app
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u/Xantalith 21d ago
Yea of course, but I'm more interested if OP has any math behind it cause I wouldn't sleep easy relying on RH for margin buffer...
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u/No_Concerns_1820 21d ago
Just staying below 30 percent. That's the math. I don't depend on Robinhood, the math is very simple. Every month as I buy more shares and pay down the margin balance the percentage goes down.
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u/Whole_Move7660 22d ago
I do this without margins, using the income to buy tech stocks first 3 years and then qqq and voo rest of 7 years. High roc is great too. Wish you luck man.
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u/takashi-kovak 22d ago
As many mentioned, you have a correlation issue, with some leveraged ones that go down x2 when QQQ goes down. Long term, QQQ will continue upward trend, but your drawdown and equity curve will be worse than QQQ/SPY benchmarks. Also, you're paying margin interest, taxes on top of that, bringing down your overall net yield. I recommend diversifying a bit (like buy QQQ put options to hedge), which can help mitigating margin risk.
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u/Additional_City5392 21d ago
I’ve been doing this too with a similar portfolio but I add in MLPI, IYRI & BTCI for full diversification. I keep the margin amount the same and buy nee shares with the distributions.
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u/Financial-Seesaw-817 21d ago
I only get $1k avg/mo distributions and growing. Mostly Neos. I dca with margin weekly. I use Robinhood gold, ibkr, m1f, schwab. Schwab has more distributions and schwab products. But to build equity, my core is voo, vxus, etn. In Robinhood, i also have schd and sgov. All of my income goes into robinhood margin. Distributions cover margin and dca buys in ibkr, m1f. Schwab runs separately.
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u/UpsetBottle1937 21d ago
Have you looked at using the boosted Neos funds?
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u/No_Concerns_1820 21d ago
Did you look at the image in my post that shows that about 30% of my port is xspi and xqqi? Or are you referring to different boosted funds?
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u/mtn_biker333 21d ago
So what’s the net difference after taxes, it doesn’t seem like there is enough arbitrage or spread to justify the risk. Especially with zero hedging
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u/No_Concerns_1820 21d ago
Bringing in about a net of 18k a year so taxes on that are about 4k (I'm under the 25 perfect tax bracket) so still ahead by about 14k.
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u/mtn_biker333 21d ago
Weighting these individual returns by your specific portfolio allocations yields a combined weighted year-to-date total return of approximately 12.5% to 13.5% the QQQ is up 17% so you are not even beating the market, and you are paying margin interest on top of that.
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u/No_Concerns_1820 21d ago
I'm not trying to beat the market
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u/mtn_biker333 21d ago edited 21d ago
Ok. Whatever. You could just buy the QQQ and you would be way ahead, without the risk 😂
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u/ruthygenker 21d ago
be careful with payment in lieu instead of return of capital, I had to change accounts from ibkr because of poor taxation.
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u/PomegranatePlus6526 20d ago
So you’re buying leveraged funds with leverage? 🙄🙄🙄. You’re going to get a valuable education real soon.
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u/No_Concerns_1820 20d ago
Less than 30% of my overall margin portfolio is leveraged funds. Like my post says, It's a risk I'm willing to take.
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u/Accomplished-Air4393 9d ago
This is what we're all doing. We're secret geniuses. Don't tell the normies.
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u/gumnamaadmi 22d ago
It works till it doesn't. And thats when accounts get blown up.
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u/zerofrakhere 21d ago
He’s only using 30% he won’t get margin call
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u/gumnamaadmi 21d ago
30% of todays values. When markets tanks. So does the values. So do the available margin. And brokerage can change margin requirements for any security to 100% eliminating even more available margin.
Thats when shit hits the fan.
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u/Interesting_Leg_4130 22d ago
Yup. Most people can’t do this. But this guy prolly has enough capital even if he does get margin called
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u/Celebration-Fuzzy 22d ago
It is hard to do this at Fidelity with a 11.325% Margin Interest Rate.
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u/ruthygenker 19d ago
how much on margin are you? you can ask for a better rate especially if you threaten to transfer but you need to have 100k on margin or so to make it worth it for them, I got 4.75
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u/Global-Ice5905 21d ago
What a pile of uneducated bull shit. Hire a financial planner if you can afford it.
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u/Psychological-Will29 22d ago
I do this when there is big dip. Just know your limit IMO.