Settling the debate over TQQQ as a long-term investment
In my youthful, reckless quest for returns I've encountered many discussions on the merits of TQQQ as a long-term investment, with both sides adamant they are correct. As a novice investor myself, I'd love to hear some expert opinions on if TQQQ is in fact a wise long-term investment.
The primary argument against it seems to be that 1. It takes a ~30% drop in price to wipe out your entire investment. And 2. Something about the use of leverage and rebalancing of holdings creates decay, which in the long-run diminishes returns.
On the contrary, many have stated that it is still a viable long-term holding due to the ever-bright future of tech (despite current high valuations as well?) and use of leverage to obviously amplify returns.
Can anyone educated on the subject please clarify this for myself and the numerous other noobs clearly too uneducated to get to the bottom of this?
Apologies for my potentially irritatingly simple questions; Just a youngster trying to make sure I'm making wise decisions while learning as much as I can! Thanks guys.
Read this
https://seekingalpha.com/amp/article/4226165-trading-strategy-beat-s-an…
Great article, thanks a lot!
You got it
Listen, if I could find the other post of this last week I would copy my response but here's the brief of it. YES, if you want to invest in equities longterm and especially DCA I think TQQQ is the best longterm investment. I think this is especially apparent if your someone who wants to get in on crypto-esque volatility but want that through a traditional brokerage or IRA.
I personally have 100% of my Roth IRA in TQQQ. It's a very long time horizon for my young age and it's capped at $6k a year anyway which isn't really much money at risk in the first place and the outsized gains over the decades will be tax-free. No brainer.
2x leveraged QQQ and some of the portfolio in 2x leveraged bonds offers a solid risk/reward ratio so you can relax a little. If you'd had such a portfolio during the 2008 you wouldn't have even lost that much. Good lord, I need to get a better brokerage than fucking vanguard ASAP! Thanks for the reminder
Hey Drumpf, any recs on any leveraged bond funds you’ve looked at? Will google around but haven’t seen one before
Not OP but many of the fixed income CEFs on the market use leverage to at least some extent. I have a ton of my PA in PIMCO ETFs that use leverage on various strategies - that said, many of these funds tend to target income rather than capital appreciation (since why else would you own levered fixed income securities). My personal approach has been to use a lot of margin (1.5-1.9x levered) and set up dividend reinvestments to get a sort of pseudo-growth portfolio via fixed income securities.
Yeah but then what happens if the Fed decides to raise rates? Both tech and bonds will get destroyed, so what was a hedge now turns into a double kick in the nuts
Exactly.
I'm all in on it, been all in on it. Don't plan on selling any for at least 10 years. Going to DCA in with every bonus. #tothesun
Same I’m DCA every two weeks rn. although I won’t lie trying to find the time around the next market correction and jumping in heavy could be a serious life changer. I’m not talking about trying to time a bottom, but just jumping in after a 30% fall in the index (just a 10% market correction) could prove major. Obviously no one can exactly time it. My guess would be some point Q1 2022...wondering if you had any thoughts?
I've done a fair amount of backtesting on this strategy (basically from the start of QQQ) and you are right, timing can play a huge role in overall long-term returns. It could be the difference of you ending up with $1mm or $50mm in highly volatile instruments like this. Ideally, the more incremental you can be with your DCA the better, but I imagine you work at a bank, and doing daily buys is super cumbersome and annoying with trading restrictions/approvals.
I don't have much dry powder at all right now, and I am waiting for my bonus to buy again. Like you said, a great buying opportunity is most likely on the horizon whether its next month, in 6 months, or 2 years - but no one really knows. In my opinion, equity markets are pretty much directly tied to fed policy, and they are showing no signs of raising rates any time soon. Low rates are inflating asset prices higher and higher, which is not bad at all for TQQQ, but when rates are raised I expect a sizable amount of downward pressure and an interesting entry point if anything. In the short term, I'll reevaluate in January and probably build my position over 1Q22, and in the long term I'm just going to continue to shovel cash in.
What’s DCA mean?
Does anybody have an opinion on the HFEA portfolio (55% UPRO (could be TQQQ) and 45% TMF)? From the looks of things, it seems better than 100% 3x equity as you don't get hit as hard during market crashes.
Here is a summary of it from Bogleheads outlining the strategy and a bit of backtesting: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=272007
Feel like this is the right answer, would love to hear more on this
I’ve seen this very intriguing but my question is simple: how the hell is TMF going to spike on the downturn if rates are already at 0 am I missing something obvious??
I guess it's just viewed as a safety asset. During a crash, people freak out, sell equities and there are only so many places that money can go. TMF performed well during the covid crash.
Rates rising could be more of an issue though imo.
https://www.afrugaldoctor.com/home/leveraged-etfs-and-volatility-decay-…
The optimal leverage (given recent history) is around 2. So it makes more sense to invest in the 2x leveraged variants of the Nasdaq and 20 year treasury bonds
Okay this strategy seems very compelling after reading through the backtests and general theory. But what are thoughts on TQQQ vs UPRO (or the 2x leveraged equivalents)? Is there just a higher risk of TQQQ going to 0 due to the higher risks, betas, and valuations of tech?
Thank you all for your thoughts, this is very helpful information to work through and I'm loving all these sources to read through!
Bump
lmao i bet you failed cfa l1 at least twice
only do shit like this if youre ok with having a 95% chance of 0$ liquid when you retire, except you wont be able to retire and will work until youre 84, then spend 3 years forcing your family to go in debt as you rot away in a nursing home
Username fits the comment.
Have fun getting 3% returns a year with your portfolio of safety stocks, IG bonds, and treasuries
I am a 21 year old who has saved $40k ($26k in Roth IRA) without a dime of contributions from anyone other than my own wages worked part time since I was a teenager, with a job lined up in tech M&A. Not sure what you're on about "failing cfa l1 at least twice" (by the age of 21!), but I'm not too worried about retiring broke or working til 84 given where I'm already at! Thanks for the insights though
lmao good luck supporting a comfortable lifestyle with the salary of a m&a banker
tqqq is risky
"there are only 3 ways you can go broke: liquor, ladies, and leverage" - Charlie Munger
be careful out there kiddos
You seem like the only voice of reason on this thread. All this talk about crypto and TQQQ seems too good to be true.
it could be, or I could be missing out on profits.
I've known or known of plenty who've gone bust with leverage, never known anyone who went bust with the mindset "if it sounds too good to be true, it probably is"
Tell me Charlie Munger hasn’t played with liquor, ladies and leverage lmao
I don't see how anyone could smile in their 90s without them
I believe with leverage he's talking more about using margin or short selling where it doesn't matter if you're right long term because you can go bust short term
A lot of smart money is in SQQQ, it yields far above QQQ or SPY and the puts have been paying for 11 years.
I am pretty sure that when times gets large enough an equity etf leveraged 3x that have admin costs has a 0 value with close to 100% probability, the questions is what is "large enough". Maybe you could invest a part of your wealth as a lottery ticket for a decade or two? A casino or binary options could be a lot more fun, though.
Top
$SOXL
Anyone’s jobs restrict them from owning levered ETFs… currently going through that now. Any input is appreciated.
That’s ridiculous. I’m in IB no such restrictions on ETFs....leverage or not...their damn ETFs what knowledge could you possibly have
No clue brother but going to fight my compliance on this. First they told me no to 3x then said no on 2x … missed a good buying opportunity last week.
That's ridiculous hope you figure it out
I'm not an expert in investing, but shouldn't this be a huge red flag? A 30% drop could happen, and I'm not sure I feel comfortable putting my money in something that could go to 0, especially over a decades-long horizon.
Pretty sure the Nasdaq exchange closes if it sees a market drop of 25% on the day.
So is tqqq and tmf split consensus?
I really don't understand why TMF is the hedge. Isn't TMV the one that should go up w rates rising (when equities fall?)
Lol. You've clearly read all the other debates on this forum, yet started a new thread for the same. You're young, and not completely stupid, so go deep until you feel tech is structurally less attractive and valuations will compress severely. Don't do this stupid trading in and out shit betting on rate hikes etc.
Man thank god this has been settled once and for all! Will be super refreshing not to see this thread again on Monday!
Can’t help myself but share my true thoughts. Been on that MF TQQQ for a minute.
Thesis: if we see a sector wide 30% draw down in tech it’s probably gonna fuck shit up enough that retirement goal posts move regardless of investment strategy, and life is a simulation anyways
Is a 33.33% single day drop even possible with circuit breakers?
Not possible. First circuit breaker will hit at just 7% of the underlying
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No I’m stupid and made all these trades while in green out yesterday. I just checked my actual numbers and you’re right.
i bought SQQQ to convert it during a drawdown
Personally I think the best argument against TQQQ would be based on Kelly criterion which states that the optimal amount of leverage to use to maximize returns per annum over the long run (not risk adjusted returns, but long term maximized returns before the volatility starts degrading the geometric returns) is the expected real return divided by volatility squared.
For the nasdaq the expected real return is simply the equity risk premium, so 4-5%.
Volatility is roughly 15-20%.
With those parameters, optimal leverage is 1-2.2x, not 3x.
The reason TQQQ has worked since 2010 is that real returns on the nasdaq have been >10%, but obviously over the long run one would not expect that.
I have no qualms about leverage, I just think people using TQQQ don't realize it will actually compound slower over the long run versus a less levered portfolio.
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