Levered ETFs
Looking to potentially get involved with some of the levered ETFs and searching for some feedback here. I'm 25 years old, so will be long in all of my investment decisions. What are some general pros / cons of investing into some of these levered ETFs if I'm going to be in them for 10+ years? Assuming the U.S. economy continues to grow and I look into QQQ or UPRO for example, it feels like a solid risk / reward for someone in my situation. Open to feedback
I use leverage ETFs often, especially to trade in my ISA.
Firstly there open for a shorter time of the day, can cause some issues if there’s large price movements during the day. I guess if your holding for the long term that might not bother you. I would recommend diversity when picking. Had the 3x Tesla, when Tesla went down it had an effect on my portfolio.
Can’t say much more I personally don’t hold them for a long time so might have to research into long term holding.
Thanks, make sense hhh.
TQQQ gang
The 3x leverage is intraday and then it rebalances end of day so the long term effect is rather different than 3x the index. If the index is roughly flat then the leveraged ETF will decline perhaps substantially. As interest rates are high now the implicit financing costs for the leverage will also be higher than 2009-2021. Index futures can provide leverage for somewhat cheaper but would require you to occasionally roll/adjust your exposure.
Putting your entire portfolio into 3x leveraged products strikes me and many others as excessively risky as a repeat of 2008 could mean your portfolio suffers a huge drawdown and you face a highly elevated risk of unemployment. Putting say 25% of your portfolio into 3x leveraged for a total portfolio level leverage of ~150% would be safer although would that would require periodic rebalancing to maintain the same total leverage.
Currently holdings in leveraged ETFs are probably small enough that this is a minor concern but in some cases like inverse VIX products in 2018 large programmatic and publicly known flows due to ETF/ETNs have moved the market in a way that probably hurt holders of the products similar to when any crowded trade deleverages.
The only risk is not buying enough 🚀🌙
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