Episode summary
What is Return Stacking?
Ask The Compound
· · Hosts: Ben Carlson, Duncan Hill · Guests: Corey Hoffstein
Summary
The episode centers on how return stacking uses modest leverage to combine traditional stocks and bonds with diversifiers like managed futures, gold, or long-short strategies. Corey Hoffstein says the point is not to take reckless risk, but to use liquid, uncorrelated exposures so investors can widen diversification without giving up their core portfolio. He frames it as especially useful when people want to add alternatives but do not want to decide what to carve out of a 60/40 mix.
Hoffstein also distinguishes two uses for the tool: adding diversification to a portfolio already built around equities and bonds, or freeing up capital so investors can hold their desired exposures plus something else on top. He argues that leverage becomes dangerous mainly when it is illiquid, concentrated, or excessive, and says the cost of stacking bond exposure is effectively tied to T-bills, not some mysterious product feature.
The rest of the episode stays practical. Ben Carlson explains why he avoids individual stocks, arguing that indexing removes a lot of emotional and time costs even if it means missing some home runs. The show also revisits a four-year retirement cash bucket rule, rejects using buy-now-pay-later as stock market leverage, and closes with the idea that younger investors who got a late start can still build a solid long-term plan by saving consistently and adjusting over time.
Key takeaways
- Corey Hoffstein says return stacking is about using modest leverage to add uncorrelated diversifiers without abandoning stocks and bonds.
- Hoffstein argues leverage is most dangerous when it is illiquid, concentrated, and excessive, not when it is used in liquid ETF structures.
- Ben Carlson says he prefers indexing because it avoids the emotional drain and large drawdowns that come with individual stock picking.
- The four-year rule described on the show keeps years of living expenses in cash so retirees can spend from the cash bucket during bear markets.
- Carlson says buy-now-pay-later is too short-term to justify stock market investing and prefers a rewards credit card instead.
- For younger investors who wasted time early on, the advice is to keep saving, keep investing, and let the plan evolve over time.
Notable quotes
“return stacking is the practice of using modest leverage to layer multiple sources of return on top of a traditional portfolio”
“we want to avoid lice. leverage that is illquid, that is concentrated, and that is excessive”
“it allows you to incorporate these alternatives without having to sacrifice the core stocks and bonds that you know and love”
“there's never a time to panic”
“the fact that you turned it around and you're saving uh sounds like a perfectly reasonable strategy to me”
How the episode opens
Welcome back to Ask the Compound, the show where you ask and we answer. I am Ben Carlson. Is it possible to use leverage in your portfolio in a responsible manner?
Can leverage actually give you an even more diversified portfolio? How does return stacking work? We're going to cover these questions and more on today's show.
Stick around. All right. Their email here is askthe compound show@gmail.com.
We usually do these shows live. Today we're pre-recording because I'm a modernday Clark Griswald taking my family to Disney for the week. Uh uh what's the best Thanksgiving movie?
I know you've got one. Planes transit on wheels obviously. I got something on that for today.
Uh on today's show, we're answering questions straight from our compound inbox as always on how to use leverage in your portfolio responsibly. Why doesn't Ben, that's me, pick individual stocks anymore. How the four-year rule works.
Uh, a young guy asks if it makes sense to use buy now pay later for from a time value of money perspective and then does it make sense to just pour your money into a target date fund and a handful of Vanguard ETFs and call it a day. Today's show is sponsored by Public. Public is the investing platform for those who take it seriously.
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From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- return stacking
- 4 year rule
- bnpl leverage
- making up for lost investing time
- long term investing plan
Companies and tickers mentioned
- Newfound Research
Watch the episode
Watch “What is Return Stacking?” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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