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…
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
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
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?
"there are only 3 ways you can go broke: liquor, ladies, and leverage" - Charlie Munger
be careful out there kiddos
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.