A focus of many who seek financial independence is building passive income. Payments that come without you having to do any work for them. My passive income in dividends, interest, and mutual fund distributions was about $13,000. Short-term capital gains from trading - which isn't passive income - generated about $6,000, but I spent about $4,000 on investment interest (mostly margin interest). If I wanted to maxmimize capital appreciation I could gear up a lot more and have the cash-flow to cover the interest payments. I've really been very conservative in this regard, though the vast majority of investors in the stock market do not borrow to invest at all. On the other hand, margin loan rates I am paying are actually very expensive relative to other sources of leverage (futures, options, levered mutual funds). Taxwise, in the US it is optimal to not exceed the sum of short-term capital gains, interest, and US non-qualified dividends in margin interest payments. For example, if tax is with-held on foreign dividends you can't claim it as a foreign tax credit and simultaneously deduct margin interest against the income. The built-in interest component of futures, options, and levered mutual funds is at a much lower rate - close to the risk-free rate - than most brokers lend at to small accounts.
Again, I need to at least double the combination of passive income and short-term active trading gains. The cash flow would then cover my expenses and price appreciation (this year around $20,000) would more than cover the effects of inflation in eroding the value of my taxable accounts. Given that my retirement accounts would continue to grow undisturbed, running down the value of the taxable accounts a little wouldn't really be a problem, but it is better to have rising rather than falling income!
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