Some insights on leveraged ETFs and their drawbacks. 3x Leveraged ETFs : What They DON'T Want You To Know "Leveraged ETFs like TQQQ and UPRO are a great way to stack up some serious losses. Sure, these funds offer triple the daily gains of the underlying index on a good day. But when volatility strikes, look out. Volatility drag, high fees, and excessive risk make these funds uninvestable from our point of view. Today, we'll uncover the truth behind leveraged ETFs and why we believe they shouldn't be used by anyone."
Actually the losses can be more than 3x. For example if you have $100 in QQQ and it drops 10% one day, then goes up 10% the next day you would have $100 x 90% x 110% = $99; i.e. a 1% net loss. But with TQQQ on the same days, you would have $100 x 70% x 130% = $91; i.e. a 9% loss.
It's for trading not set it & forget it investing. Leveraged ETFs are just a way to get more leverage. I've used TQQQ, LABU, SOXL & FNGU at times but yes you do have to exit when the trend changes. If you bought when the Fed started the printers in April 2020 I believe LABU SOXL FNGU all went up about 15-20X in 12-18 months. But you had to exit when Powell said he was going to raise rates in November 2021. In fact 11/1/21 was the peak in most tech ETFs. I've used options but realistically you can't hold options as a leverage instrument for too long because of the massive decay. In that sense these 2X 3X instruments are an upgrade.
%% Cash ETFs work better in small moves + sideways trends; catcha good trend right + 2or 3x maybe ok/ better....................................... better. NOT suitable for all investors LOL
These leveraged ETFs are not meant to provide 2X or 3X return for any time period except for a single day. The fund resets every day. If you hold the leveraged ETF overnight with gaps between closing and the next open then your returns will vary greatly from 2X or 3X. Additionally note the 2X or 3X daily return on these funds is before fees and expenses. The fees and expenses are quite steep. There is also the issue of volatility drag. These are some of the risks associated with these leveraged funds.
That's all factually true. Like I said above, it is a good alternative for leverage. SOXL went up 24X from March 2020 to November 2021, do you believe there is another way you would achieved that feat? I was up 13X from October 2024 to November 2024 on MSTU, a 2X MSTR instrument. In 3 months on PLTU (2x PLTR) I was up 8X in its 2024 run up. I am currently up 9X on ROBN (2x HOOD). Like I said it is a good way to get leverage over a long period assuming the trend stays in tact.
It's easy to hand-pick time periods where these leveraged fund outperformed the market. Likewise it is just as easy to hand-pick periods where these leveraged funds greatly underperformed to market. Let's take a look at 2022. In 2020 over 90 leveraged ETFs were wiped out; 29 of them by April. Approximately 40% of all leveraged (and inverse) ETFs/ETPs in the U.S. were shut down in 2020 (90 out of 243). "A litany of leveraged ETFs closed in 2020 as they amplified extreme market losses and wiped themselves out. Those that managed to stay open through March 2020 had the pleasure of crashing and burning again in 2022 after eye-popping gains in 2021."
I swing trade at times liquid 2x/3x ETFs that track directional moves well. On the more directional moves without deep long pullbacks they work fine. But be aware! examples of holding leveraged ETFs a year or more, being right on the trade direction, but still getting clobbered by the volatility drag