Quote:
Originally Posted by Bonded
Yeah. Not at my comp but didn’t mean to link the life cycle one. Box spreads will blow people up. I meant to link the second HFEA portfolio and the the ‘modified’ one. There are some different leveraged etfs in sprawled through those pages that make up different risk profiles.
The modified one is interesting if you have the cash or want to access margin but I’m not there today.
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Just watch out for the volatility drag on leveraged ETFs, as that can tank returns if you buy at the wrong time. In consistently upward markets, the returns can be phenomenal. But in choppy ones, they tend to underperform because they're targeting 3x performance on any given day, and not longer periods.
So for instance, if the S&P drops 3% in a day and then goes up 3.1% the next day, it's flat. But with a 3x leveraged fund tracking daily movements, that ETF would be a 9% drop and a 9.3% increase, which results in a -0.54% return.
Over the long term in the right conditions, that can eat away at returns. You can see that effect over the last 3.5 years or so, where the S&P is up about 34% over its pre-COVID high. You'd expect a 3x fund to basically be up 100% in the time period, but UPRO and SPXL (both 3x S&P 500 ETFs) are only up about 22% because of how choppy the markets have been. That's one of the reasons people might try to get leverage in a different way.
Of course, the reverse is true when the markets are on fire, and the returns will tend to be better than 3x the underlying index, so if you buy at the right time the returns can be insane. $50K invested into TQQQ at the end of 2011 would have been worth nearly $6M 10 years later.