>> There's no wealth-test that prevents a person from losing all their money in highly-leveraged investments - from real-estate to fancy public-market securities.
That is an exageration for publicly traded securities. It used to be possible (in the roaring '20s) to be 10:1 leveraged in public stocks. The SEC forbid that because so many people were wiped out. Nowadays retail stock accounts can under-perform, but it's a big deal when a lot of people see their portfolio decline by 30% -- think 2009.
People have gotten wiped out in large numbers on real estate. I just think it is an exaggeration to say people are taking huge risks with a normal stock account
I didn't say it is impossible. It's just relatively rare. The point of the SEC is not prevent anyone from doing something stupid and losing a lot of money. The point is to keep lots of people from doing something stupid. And in particular, to keep lots of people from doing the same stupid thing at the same time! (1929, 2008.. )
I'm unsure how rare it is, but even if it is rare, it may be because anyone motivated enough to know what a margin/options account is and to get one may be sophisticated enough to not lose all of their money doing it.
Correct. And there is technically an audit for options trading that says you need to understand how they work before a broker lets you use it. Honestly, options trading is not exactly easy to understand to the lay person and there are generally limits on how much you can lever in them.
You can trade futures, even in many retirement accounts, sometimes with just a few thousand dollars in the account. Such futures can wipe out any amount of principal in as little time as you could wire money to a sketchy private investment.
Many of the people defending these 1930s-style regulations, as if these regs truly protected people from themselves, seem to also be stuck in a mid-20th-century view of what the investment & informational environment is like.
If someone is truly gullible & risk-seeking, any amount of capital can be destroyed in any number of legally-approved investments/gambles, almost instantly. The 'Accredited Investor' rules just lock the less-wealthy out of one small and not even especially risky corner - a place where the less-wealthy could potentially better-deploy local knowledge. So this old rule is now just paternalistic friction, without any real personal or systemic wealth protection.
It's not particularly hard to get much higher leverage using futures. Leveraged ETFs don't go above 3x, so they're kind of middle of the road between margin accounts (2x) and futures (10-20x). Or with forex trading, retail investors can get like (50-400x).
In terms of risk, it's important to consider the volatility of the underlying and the leverage ratio.
New home owners are taking on massive leverage on a new home purchase, but usually the low volatility of real estate protects them from too much pain.
That is an exageration for publicly traded securities. It used to be possible (in the roaring '20s) to be 10:1 leveraged in public stocks. The SEC forbid that because so many people were wiped out. Nowadays retail stock accounts can under-perform, but it's a big deal when a lot of people see their portfolio decline by 30% -- think 2009.
People have gotten wiped out in large numbers on real estate. I just think it is an exaggeration to say people are taking huge risks with a normal stock account