Why Leveraged ETFs Are Too Risky for Retirement Accounts
- Thread starter ajacobson
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Well 100% of home forclosures are leveraged LOL. I wonder if that chart proves what IBD founder said ?? ''..... in the later stages of bull market, get off margin '' [3X ETFs are margined ,so to speak] All those 3X ETFs have plenty of risk warnings; several hundred pages to 500 pages /+ of warnings.
So TQQQ is up approximately 3500% from inception (feb 2010 (the chart is not cherry picked but from inception))
QQQ is in that period from appr. 45 to 180 (so 300% up)
QQQ pays dividend (TQQQ does not). Let's assume that this is (compounded) an extra 100%. So long QQQ earned 400%.
Quite astonishing that the leverage pulls much more (up) than the decay + management fee (down).
Levered utility etf is nice in environment where dividend yield is relatively favorable to treasury yields( like now) . Sort of like a spread trade. Same with long levered reits. Nothing to sneeze at.
Got a young nephew whose 1st multi family is a levered long 33x investment.
Obama money. Not much skin in the game.
Buy,buy,buy......
Got a young nephew whose 1st multi family is a levered long 33x investment.
Obama money. Not much skin in the game.
Buy,buy,buy......
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Here is a 2 times leverage Nasdaq-100 index fund with a longer history from its inception.
This is a growth chart, so it includes dividend reinvestment. Investor would have been down 30% after 19 years.
3 times levered would have fared much worse.
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Yes, the rebalancing constitutes an inverse vol-pump, minus fees. A small investoer with a RobinHood (close to zero transaction costs when rebalancing MOC) could easily implement an actual vol-pump on the QQQ and commensurately outperform the unleveraged index index over the 19 year period.
Problem with these leveraged ETF's (looking in isolation) investor can not sustain huge drawdown and abandon at the worse possible time. These are best suited when paired with some what negatively correlated instruments like long bond and/or gold.
Very interesting comments. I was thinking about rebalancing my levered portfolio to reduce drawdown risks.
Let me see if I understand what you were saying: When you do levered QQQ, rebalancing will worsen your absolute return? But what about risk adjusted return?