This week completes the full retreat of the ERM community from their leveraged portfolios and margin accounts. This article addresses the thought processes behind the withdrawal, along with a background on our approach towards applying leverage.

Background on the use of Leverage

The Early Retirement Masterclass (ERM) is one of the rare programs that include leverage as part of investment training. Our approach is to keep our equity multiplier to be always within x2, capping borrowed funds to about $1 for each $1 of capital injected into the margin account. Throughout the course, we emphasize that leverage is dangerous and is most appropriate by younger investors who have strong career capabilities to support a margin call. For middle-aged investors, we only employ to match a specific liability, in my case, to pay a mortgage and relieve my unleveraged portfolio. We use only the most stable portfolios for leverage, 10-year back-tests return 12-15%, with a...