Financially Speaking: Margin, Options & Betting ... Oh My!
By Fred Dunbar
By the time you read this, we will have already celebrated our country’s 250th birthday. There was so much fanfare surrounding the Fourth of July that it was hard not to feel proud of our nation. The weather was certainly hot enough, and the only real relief seemed to be at the beach. Visitors from around the world gathered to celebrate their countries’ participation in the World Cup, and many appeared to love spending time here. Despite our nation’s imperfections, there is still no better place to live than the good old USA.
The financial markets have been celebrating as well, posting impressive returns that make it seem as though nothing can stop the rally … until it does.
Over the 12 months ending May 31, the market gained nearly 30%, and through the first five months of 2026, it was up more than 11%. How did your portfolio compare? Most investors I know do not invest their entire portfolios in the S&P 500. Much of the market’s recent performance has been driven by Artificial Intelligence (AI) and the so-called “Magnificent Seven” (Apple, Microsoft, Amazon, Alphabet, Meta, Nvidia, and Tesla), which collectively represent roughly one-third of the S&P 500’s market capitalization.
Jack Pitcher of The Wall Street Journal recently wrote an article titled “The Trillion-Dollar Borrowing Binge Lifting the Stock Market to Risky Heights.” He noted that U.S. margin debt rose 54% over the previous 12 months, reaching a record $1.4 trillion. Think about that for a moment.
Pitcher also pointed out that high-risk leveraged exchange-traded funds (ETFs), which seek to deliver two or three times the daily movement of underlying stocks, have been growing rapidly, along with the options trading tied to them. These leveraged funds have purchased $300 billion in derivatives since March, helping fuel demand for stocks but also increasing the potential for significant losses if markets decline.
He further observed that South Korea’s stock market has become heavily concentrated in high-flying semiconductor stocks, attracting investors eager to participate in the rally. More recently, some Korean stocks declined so sharply that circuit breakers – mechanisms designed to pause trading during extreme volatility – were triggered.
Mark Hackett, chief market strategist for Nationwide’s Investment Management Group, described the current environment by saying that some investors have adopted a “lottery mentality,” using margin loans to buy options on leveraged ETFs. If you do not fully understand what you are doing, you may be gambling rather than investing.
A margin loan allows investors to borrow against the value of assets held in a brokerage account, using those assets as collateral. The borrowed funds can be used for various purposes, including purchasing additional securities, implementing advanced trading strategies, hedging investments, or increasing portfolio diversification. Margin interest rates are often lower than those on personal loans or credit cards, and larger loans may qualify for lower rates.
For this discussion, however, let’s focus on using margin solely to purchase additional investments. There will always be some investors who continue buying high-flying AI stocks because they fear missing out on future gains. With markets sitting at lofty levels, now may be a good time to review your portfolio and rebalance it to ensure you can weather whatever storms may lie ahead.
Speaking of gambling, it appears to be becoming a greater problem than ever before.
AARP publishes its Bulletin regularly and often includes valuable information for retirees. A recent edition featured “Gambling With Your Future,” an article highlighting how some older Americans are losing retirement savings through online gambling.
Do you remember when Atlantic City opened its first casino? Resorts International Casino Hotel opened on May 26, 1978. At the time, New Jersey’s Casino Control Act permitted casinos to operate only 18 hours per day during the week and 20 hours per day on weekends. In those early years, many seniors traveled to Atlantic City on casino-sponsored bus trips that included round-trip transportation, a $10 roll of quarters, meal vouchers, buffet discounts, and other perks. For many retirees, these outings became a weekly or monthly tradition.
Today, the gambling landscape looks very different. Several states have legalized real-money online casinos, making gambling more accessible than ever before. While there are many forms of addiction, gambling ranks among the most destructive.
Unlike traditional casinos, where players eventually have to stand up, cash out, and leave, online gambling platforms provide access 24 hours a day, seven days a week. There are no physical chips to run out of, just a smartphone, a linked bank account, and a constant temptation to chase losses.
The AARP article shared the story of Jack, an 81-year-old retiree who had occasionally played slot machines during visits to Atlantic City with his wife and never viewed himself as someone with a gambling problem. Everything changed when he discovered that he could gamble from the couch or the bathroom. Living comfortably in retirement, he and his wife owned their home, and their expenses were covered through a combination of a pension, Social Security benefits, and savings.
Out of boredom, Jack began gambling on his phone at night after his wife went to bed. Downloading casino apps made betting simple and convenient. Before long, he was losing as much as $5,000 in a single night, which he certainly could not afford. He was shocked that he could develop such a problem so late in life. The reality is that it can happen to anyone. If you are retired and lose your nest egg through gambling, the odds of rebuilding those savings can be slim.
So, what do margin accounts, option trading, and online betting have in common? In the wrong hands, all three can become forms of gambling.
Margin accounts can be valuable tools when used appropriately. Options can serve as effective hedging strategies and risk-management tools when investors understand how they work. Online gambling, however, concerns me because of how easily individuals can become addicted and lose substantial amounts of money.
At the end of the day, building a secure retirement takes decades of hard work, discipline, and consistent saving. Losing it can happen far more quickly. Keep your focus on the long term, stay within your true risk tolerance, and protect what you have worked so hard to build. Steady, thoughtful decisions can help create the wonderful, worry-free retirement you envision.
Remember, slow and steady wins the race. It may not be exciting, but it can help lead to a more secure and enjoyable retirement.
Now that you’ve taken a moment to consider these risks, reward yourself. Head to the beach with your favorite beverage, book, and chair. Enjoy the rest of the summer.
Fred Dunbar, CLU®, ChFC®, RFC®, AIF®, is the former President of Common Cents Planning. Fred’s team may be contacted at 610-361-0865, by e-mail at info@commoncentsplanning.com or by mail at 239 Baltimore Pike, Glen Mills, PA, 19342. Investment advisory services offered through Planning Directions, Inc., d/b/a Common Cents Planning a Registered Investment Adviser. Fixed insurance products and services are separate from and unrelated to Common Cents Planning.
This commentary is meant for general informational purposes only and is not intended to be a substitute for professional financial, tax or legal advice. Investing involves risks including the potential loss of principal. Past performance is no guarantee of future results. All indices are unmanaged, and investors cannot actually invest directly into an index. Unlike investments, indices do not incur management fees, charges, or expenses. Past performance does not guarantee future results.
