How Much Leverage Should Altruists Use?
Cross-posted to the Effective Altruism Forum.
Last updated 2020-05-17.
Summary
Philanthropic investors probably have greater risk tolerance than self-interested ones. Altruists can use leverage—borrowing money to invest—to increase the expected utility of their portfolios. They may wish to lever their portfolios at much higher ratios than self-interested investors—likely 2:1 to 3:1, and perhaps much higher (practical concerns notwithstanding).
Unlike normal investors, altruists care about reducing their correlations with other investors, so they should heavily tilt their portfolios toward uncorrelated assets.
This essay will discuss:
- Traditional vs. altruistic investing
- Basic arguments for using leverage
- Appropriate levels of risk for altruists
- The importance of uncorrelated assets, and where investors might be able to find them
- Potential changes for philanthropic behavior
Disclaimer: This should not be taken as investment advice. This content is for informational purposes only. Any given portfolio results are hypothetical and do not represent returns achieved by an actual investor.
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