Leveraged ETFs - Not The Return Cheat Code You'd Expect

[@PBoyle]

This is such a useful video. Most investors don't understand how the rebalancing of these products work and that they never get the returns stream they expect. These are some of the worst financial products available.

[@danielsich3362]

Isn't there a arbitrage opportunity when you short the 2x etf and go long the double amount of the normal etf? (Sorry for bad English)

[@danaphanous]

@@danielsich3362 And this sort of thing is the main use of the product. It was created as a tool for funds and investors to use on the "short term" to arbitrage. It almost always loses if held for too long as a normal recession would wipe these things out. There is a bit of survivor bias on these funds too, because the funds that had this kind of leverage and went bankrupt in the Great Recession are gone and no one hears about them anymore. All they see is the track record of funds established since then for the most part and that is misleading.

[@joshgould2707]

Patrick and plain bagel colab? 👀👀

[@TrashwareArt]

In a way the markets kind of depend on people to take a lot of risk. In some ways it seems a very viscous cycle, as there is not much incentive to create stability.

[@eyeonrecovery8319]

Sorry Pat, but no it isn't. The S&P 500ncan't drop more than 20% in a day without the market being completely shut down so a 3x S&P 500 fund would never reach the >33.3% drop needed to be completely wiped out like it sates in the video. Also, do a search for how a 3x S&P 500 etf performs over the last ten years. vs. a non-leveraged etf like VOO does. The leveraged etf wins hands down. When looking at long term hold of leveraged etf, volatility is your enemy, but a leveraged etf based on a low volatility index with the S&P 500 can be fine. There are also fund and etf that do 2x leverage with monthly rebalance as well.

[@fuzzypanda1684]

The 1920's taught us a simple lesson: using massive leverage is totally okay as long as you have an open window above the 20th story nearby.

[@jeffshackleford3152]

Dark...

[@Christian-mn8dh]

👹👹

[@Jacksonville311]

Well leverage is very tricky, many leveraged ETFs are constrained to a large sweep of allocations. If your a personal trader using leverage you can make more pointed allocations. For example, I use roughly 2x margin for my equities portfolio, I own 83 different positions that I have evaluated myself. I find this to be much more successful with my YTD up 41%. But leverage is certainly scary, when the bottom fell out in March 2020, I lost 32% of my portfolio in 4 days. Be careful with leverage and stay away from windows.

[@fallenangel2123]

go ahead and use it 🤪

[@spidercart4745]

Leveraged ETFs aren’t even massive leverage…

[@chadb.280]

So... Upro's inception date was June of 2009 at a price of $1.20. Price of SPY on the same day was $91.84. As of today, prices are $50.93 and $455.51 respectively. $1,000 dollars in each in June 2009 turns into over $42,000 compared to just under $5,000. Granted these numbers do not take into account expenses ratio's but I'm not seeing a negative bias? You just have to know your product and understand the risks involved in your investment.

[@yakuzam846]

If you can take in the big swings it is the right investment

[@sebholding]

i was thinking the same...

[@Etaoinshrdlu69]

You could have bought at the peak in July 07 SPY for $154 or $12.52 SSO. Assume $10k invested. You would now have $39K if you was in SPY or $80K if you was in SSO (2x leverage). And that's surviving the great recession, the euro crisis, the 2016 flat year, the covid crash, and the 2022 six month draw down.

[@bultvidxxxix9973]

I'll just invest all my money into a x10 leverage certificate and nothing can stop me on my way to financial independence. Except for a 10% correction.

[@hallowiegehtesdir5843]

just take on more leverage (infinite) and you will be fine

[@Fabian9006]

Hahaha 😊

[@JRmarksmen]

Here is what you do. Put all your money in 401ks and IRAs. Then invest everything else on margin. If it goes down who cares? Say you owe 100k to the brokerage, here is the cheat code out: bankruptcy. Vankruptcy cant touch 401k or IRA, so you are good to go. Once you are done and clear, withdraw new seed money from 401k and IRA and repeat. Just make sure to stuff some tendies in their on your rise up, so you dont run out of seed money.

[@Fabian9006]

@@JRmarksmen I'm pretty sure, that he is from germany, so no IRA and 401k 😉

[@chaostade4087]

you mean 5%

[@drunken_moose]

I always wondered this, thanks for making this video! I was looking at 2x and 3x leveraged S&P500 ETFs last year and noticed the 2x had beat the 3x. I wondered how that happened and now I know.

[@cliors200]

Too late for me, I am x20 my positions, thinking it would make sense, but I will be more cautious next time, just waiting for the SnP500 to gain me something then I'm out

[@aaronpatterson935]

I’ve returned 178% this quarter using soxl, tqqq, upro, spxl, and their inverse counterparts. Plenty of swing traders and intraday traders using these. Also many experienced traders will buy 15-30% TQQQ for their IRA, tax haven for larger gains. Id like to point out, that during the 2008 or 2020 crashes, you could have sold out of your long bull ETFs or simply hedged them on the weekly, daily with an inverse until market bleeding had stopped.

[@undauntable6456]

@@aaronpatterson935 They are great for small window swing trades.. I usually swing TNA, SOXL,TQQQ, GUSH, FNGU, UTSL, SOXL, FAS and EURL. BUT, people need to get in and get out and not let greed take over. Id highly advise people to practice with just swing trading the sectors and indices first. If they cant successfully do it with no leverage then they should have no reason to believe they can do it with leverage.

[@AmikYoungDon]

@@undauntable6456 BLOK too

[@undauntable6456]

@@AmikYoungDon never heard of it gonna read into it today, cheers 👌

[@senseiadam-brawlstars9465]

The problem I always see with the example at 5:40 is that leveraged ETFs like the TQQQ over the long term overperform their 3xa benchmark, showing that this phenomenon can also work the other way (if you have multiple 10%+ return days in a row.) Also, I've seen examples of where if you bought a triple leveraged ETF for the S&P 500 around 100 years ago (2 years before the great depression,) even with a 1% yearly fee, it outperforms the standard S&P 500 by around it's 3x benchmark.

[@Steezboy3000]

I always say it, if the market is ever down so bad that it's not worth it to buy stocks because it won't recover, you wont care about paper money. Market goes up over time and that's pretty much a given ignoring something like an asteroid hitting earth, why not bet on it something thats been true the last 100 years?

[@cyjan3k823]

Okay, but would it be True for like 20-30 years? Not many people could See the return after 40 years, not to mention gains after 100 years. Sure, you can buy it for your Kids or something but that Different case I think

[@fallenangel2123]

@@cyjan3k823 yes, it's true look what UPRO did the last 5 years ( +368.99% )

[@fallenangel2123]

@@cyjan3k823 PS when it first appear in 2009 UPRO was $2.50 today is $109.07 , you do that math

[@f.p.5410]

If TQQQ was around 20 years ago, you'd have lost everything. Although mathematically it would have never gone to 0 (worst daily drawdown was something like 32%) I don't believe it would have remained open after a 96% loss. Even if it did stay open, it would have never recovered from the dotcom bubble, it would be at like one tenth of QQQ.

[@4CiiD3]

It is worth noting that the leverage ETF x3 can also return above x3 if there are many positive days in a row, compounding up your returns. But volatility decay is most likely.

[@seneca983]

In a certain sense, volatility drag is always negative. Let me explain. Assume that the value of the index moved continuously and that a leveraged ETF tied to that index were rebalanced at every infinitesimal moment meaning its price's logarithmic derivative were always 3 times that of the logarithmic derivative of the index's value. Such an ideal leveraged ETF would experience zero volatility drag. Its value growth would be raised to the 3rd power so if the index grew by a factor of 2 over some time period the value of the ETF would grow by a factor of 8. If the index grew by a factor of 10 over some period of time the ETF would grow by a factor of 1000. A real leveraged ETF that's balanced daily and not at each infinitesimal moment will *always* lag behind this kind of idealized ETF. The more the index moves between rebalancings the more the real leveraged ETF lags behind this ideal.

[@4CiiD3]

​@@seneca983 That is not really true, in fact that is the opposite. The least time you rebalance leverage, the least amount of volatility drag you will get. For example, a hypothetical leveraged ETF which never rebalance will not have more volatility drag than a non leveraged counterpart (if you exclude the possibility of a margin call which is the ultimate volatility dragged outcome). And when you say volatility drag is always negative... negative in what sense ? Expected return with a leveraged ETF or traditional leverage is the same. What volatility drag does is skew positively the distribution of terminal wealth you will get, and thus lowering your median outcome. Average return is still 3x index - costs no matter how you rebalance. Assuming no mean reversion of course.

[@seneca983]

@@4CiiD3 "The least time you rebalance leverage, the least amount of volatility drag you will get." No, it's not how frequently you rebalance. Rather it's how much the price moves between rebalancings. The hypothetical ideal ETF rebalances at each infinitesimal moment so the price only moves an infinitesimal amount between rebalancings (assuming continuity which isn't realistic either) so there's no drag. "And when you say volatility drag is always negative... negative in what sense ?" I already explained that. The hypothetical ideal is that returns get raised to the 3rd power (with 3x leverage) if there's no volatility drag at all. Due to volatility drag, a real leveraged ETF will always lag behind this ideal. The less the index moves between rebalancings (i.e. the less there's day-to-day volatility if rebalancings happen daily) the closer the leveraged ETF will get to this ideal but it will never reach it. "Average return is still 3x index - costs no matter how you rebalance." It's (generally) not 3x over multiple days (assuming daily rebalancing).

[@bultvidxxxix9973]

@@4CiiD3 Volatility always affects daily leveraged in a negative way. Simple example: Assuming a year has 257 trading days and yields 8% return. Then you want each single day an increase of 0.03% in the underlying for your leveraged etf. Any deviations from that (also known as volatility) will produce a worse outcome. @seneca983 No, there will always be volatility drag. The reason is that you apply a linear factor to something that doesn't scale linearly.

[@4CiiD3]

@@bultvidxxxix9973 No No No No, For example if you have multiple volatile days to the upside in row or multiple volatile days in a row to the down side, you are better off with the leveraged ETF than your "traditional" leveraged strategy with constant dollar amount in margin. Only when there are ups then down, you get more volatility decay.

[@dtwong1]

I really enjoyed the pacing of your explanation, multiple simplified examples and the very subdued visuals overall done in an objective manner. This was very educational for me and I hope the rest of your videos turn out to be just as valuable. Thank you!

[@tylerm8128]

Thanks for making this video. I've recently started adding leveraged ETFs to my portfolio, yet nobody really explained the nuances of the risk as well as you have. You've also convinced me to never skip my plain bagel for breakfast

[@seanhutcheson7638]

Keep those ETFs in there, this video isn’t data driven. I’m a director of an equity fund and allocate 25% of my personal portfolio to leveraged strategies.

[@vancejoy3724]

@@seanhutcheson7638 if you're the director of an equity fund, why are you spending so much time in the comment section of KZbin trying to convince other people of your findings for free? I'm sure your shareholders wouldn't be happy knowing how you choose to spend your time LOL

[@seanhutcheson7638]

@@vancejoy3724 Might wanna ask Cathy Wood why she also shares all her trades and findings for free on KZbin and via her email list 👀 her shareholders must be very cross with her! She must just be satiating her inflated ego! Or maybe there’s something more to it...

[@vancejoy3724]

@@seanhutcheson7638 Wood does so on her own KZbin channel, creating original content. Not in the comment section of somebody who disagrees with her strategy 😂

[@seanhutcheson7638]

@@vancejoy3724 I do the same but the content is private :)

[@VinegarMoneyGrows]

1. Market don't dip 34% in a day. We have circuit breakers to prevent that. 2. Volatility decay/Time decay does work against you. So you never hold leveraged commodity of VIX etf. Any underlying index that moves sideways and pump for a brief period of time is horrible to leverage. 3. Stock index tend to move up slowly over time and fall rapidly during crash. As long as you can avoid crash you will make more money investing in leveraged index ETF. 4. Therefore, best strategy is to buy triple leveraged ETF right after crash and ride it until it hits first resistance. Then move to either 2x or non leveraged ETF depending on your risk appetite. I see so many market experts parrot that volatility decay destroys leveraged ETF during sideways market. Index leveraged ETF should be class of its own since index move up slowly over long period of time with low volatility, therefore making TQQQ an absolute winner.

[@ConsumeristScroffa]

Are you sure about number 1? Circuit breakers have failed in the past. I think the possibility of being wiped out in another but worse Black Monday will always be there. Highly unlikely, but a real risk.

[@eatpoorpeople]

seems like there is a lot of risk that is outside of your control with 3x, why not instead buy a few companies within the index on leverage that you think will outperform after a dip or crash?

[@evanwheeler7687]

"Markets don't drop 34% in a day." It doesn't have to be in a single day to wipe you out. 2008 saw the S&P drop 57% from its previous high.

[@misterr2359]

@@evanwheeler7687 And the SSO (2x SP500) was down 81% and not 100%. If correctly rebalanced and used with uncorrelated assets, it might work.

[@LeonGK59]

​@@evanwheeler7687It does have to be in a single day, because the leverage is resetted on a daily basis.

[@fartywood3917]

Invest in a 2X Leveraged ETF, but divide your capital into small chunks and invest weekly/monthly. Dont go all in at once. Time in the market is always better than timing the market.

[@dieuetmondroithonisoitquim338]

Then go all in at once if time in the market beat timing it

[@jameslandis4058]

Certainly appreciate the content. Both the math and logic make sense.... HOWEVER... If you were to invest $100K into each of the SP500, SSO, and UPRO on 7/1/2009, you'd have $438,345 vs $2,017,414 vs $4,852,103 respectively. (starting date is when UPRO came into existence)

[@lawLess-fs1qx]

ultimate cherry pick time frame 2009 -2019 interest rates at 1% zero volatility. Investing 3x leveraged ETF in 1998. Zero money in 5 years.

[@bigstar66]

@@lawLess-fs1qx that's when you buy the dip

[@bd969]

Richard should launch his own ETF with ticker symbol PPP (Professional Party Pooper)

[@samsonsoturian6013]

That's taken by a British gas driller.

[@unnamedny]

one exists already, called ARKK

[@DiaJasin]

@@unnamedny arkk is the opposite of a party pooper? It's a party freak

[@Countcho]

He’s partially funded by big finance. They won’t be telling you the good stuff!

[@landongendur]

This is similar to home buying. When a house rises in value, say from $350K to $400K, that would be 14%+ return. But since people don't pay for a house with cash, if a person only put $70K down, the $50K equity is a whopping 71%+ return (assuming you ignore interest, maintenance, taxes, etc). Of course, this works horribly if the value of the house falls.

[@ThinkFinance]

I have to disagree with you on this. As you said, it is math. As long as people understand that math can work against you, there is not reason not to invest in leveraged ETFs. Market falling 34% in a day is a bad example since that will never happen. Circuits will come into play. We dont have to agree but I think leverged ETFs are an awesome tool for long term as well. I have 30% of my portfolio into Leveraged ETFs. My Strategy - 1. Allocate certain percentage of overall portfolio into LETFs (30%) 2. Buy dips when market fall 10-20-30%. 3. Rebalance when LETFs rise to 50% of my portfolio. It works if done right. Yes. I DCAed into these during Dec 2018 dip and during Covid. You have to buy dips and need to have a strategy. SOXL, TQQQ, UPRO and TECL are my picks. By the way look at the charts since inception. I do agree that seeing this fall when markets are dropping is not for everyone and because of which this is not for everyone. Cheers.

[@samsonsoturian6013]

XIV fell 90% and got terminated because it no longer had the funds to short VIX futures, just FYI.

[@Reon89]

@@samsonsoturian6013 thats the reason why they don't have 3x inverse VIX ETFs. max they have is 2x.That too they only put 75% of the funds into the index. rest 25% money is not used and would be in their reserve. There have been scenarios where VIX went from 30 to 21 in 1 day which is 30% drop. This when leveraged becomes 90% drop. This is what happened with XIV. It wont happen now. I have seen VIX falling by 15% in 1 day but 2x inverse doesn't rise by 30%. it rises by 10%. not even 15%. that's what happening now. We grow from our previous experiences. Do not make assumptions on what happened previously and judge whats happening now.

[@samsonsoturian6013]

@@Reon89 there's still no guarantees. Also, there's a difference between the VIX and VIX futures as the latter also fluctuates with supply and demand. And I wonder what would happen to a 3X ETF during a flash crash when its value momentarily goes below zero...

[@senseiadam-brawlstars9465]

@@samsonsoturian6013 the SEC has circuit breakers if an index falls below 20% in 1 day, so it can’t go to zero in 1 day...

[@samsonsoturian6013]

@@senseiadam-brawlstars9465 that doesn't mean it can't fall farther in a week. And it also depends of the ETF as a lot of them are invested in swaps or futures. And ETNs actually don't hold the underlying, so they get terminated all the time (especially last year).

[@SubhasAtYT]

Learned hard way, vanished 94% of investment on UCO

[@InderjitSingh12]

nice

[@zbe8ewmqYH]

That's a crude oil ETF not an index fund ETF. Far more risky

[@RaghavSharma-xc6vg]

Harder daddy

[@Reon89]

thats too less. I lost 98.4% thats because I saw my money falling for 10 years straight. And thought that its going to go up by 100000% at some point.

[@SubhasAtYT]

@@Reon89 ;-) same !! My plan is to 💎 hand my lifetime!! Which remind myself never take investment advice from frinds.

[@Icarus1234]

In my experience (trading tqqq), leveraged etfs are good for trading purposes. My trades happen on a frequency of between 1-1.5 weeks. I have seen greater return than good old qqq. Not sure about keeping tqqq for long term though

[@InvestingAlex]

I can tell you my returns when holding tqqq for 1 to 2 months or more is greater than just holding the qqq for the same time frame. And my friend who held tqqq for a decade can tell you his returns was way greater than mine or yours for any amount of time we are comparing.

[@dantae666]

Been running a levreged in my practice account for a year. It's crushing my normal portfolio and not down. I'm going to proceed with the real portfolio with a x2 levreged ETF

[@saintjoshie650]

Thanks right now I’m invested in a 3x leveraged etf UPRO and was planning to hold long term but now I will have to rethink my decision. Thank you for informing me.

[@connorspencer4283]

In the long term 3x leveraged etfs are good despite all of the things he is saying. They still give you a better return because the stock market typically goes up, its just not 3x. Its about 2x from pre pandemic high to now (which he fails to mention in the video) and 7.5x in the last 10 years (due to compounding). Also, the stock market will never dip 34% in a day.There's other videos about it with more positive opinions. As long as you're comfortable with a volatile position then you're fine holding it.

[@samsonsoturian6013]

@@connorspencer4283 depends on what index you're tracking. The S&P500, for instance, is green 53% of days. Other more sluggish economies, not so much.

[@BobbyBusiness]

Both of the comments from Conner and Samson are correct. I did my own research and have my own strategy which I am practicing but its basically investing monthly in leveraged etfs and when the market dips I double down. I back tested my strategy and it did very well BUT and a big BUT at one point in the back test I was down over 70% of my portfolio so if you can stomach that then power to you. Always remember to diversify.

[@saintjoshie650]

@@connorspencer4283 thank you, could you possibly give me the link for those videos?

[@lucasatilano8008]

It makes a huge difference if you are averaging cost too

[@matthewbiernat6640]

UPRO can't go to 0 because the SEC stops trading for the day if the S&P500 reaches -20% in a day so the most you can lose in a day is around 60%. Also it's 3x leverage on the underlying stocks not the final index so as long as one of the underlying stocks goes up in a day you will be safe from losing everything.

[@michaelsaenz380]

yeah circuit breakers exist

[@seanhutcheson7638]

Correct

[@nadonadia2521]

What if S&P500 drop -10% for four of five days in a row or something like that, did the UPRO go to zero. Belive me i experienced that with the inverse volatility in 2018 the etf went to zero and i lost 5000$ in one day.

[@citizenpunx]

I’m not concerned with the price fluctuations, but I’m trying to figure out if your actual shares can get liquidated somehow w this product?

[@JoshuaWise1994]

I have to admit, I haven't been a fan of this channel in the past (perhaps because I'm a bit more optimistic than the channel's creator), but this video was very well done. Many critics of leveraged ETFs give hand-wavy arguments citing volitility, without actual math. But this video clearly lays out the mathematical effects at play. Two thumbs up!

[@InvestingAlex]

Their math is just 1 math that affect the price movement of leveraged etfs. Price movements of stocks are more complicated than just saying a 1% up after a 1% down is a lower value. How about supply and demand for said LETF vs ETF, what if there is 1 share of TQQQ and there are 10 buyers, would TQQQ just go up by 99% after dropping by 99%? There is also no perspectives given, no comparisons to other financial products or derivative. They also forgot to tell you about the downside is limited to nearly 100% but the upside is essentially unlimited. Also, compound interest works its magic on the way up. Sure there are some risk in buying leveraged broad based diversified ETFs and a little extra cost too but so does trading options or any other derivatives.

[@RogerGoodeII]

The leveraged ETFs are not buy and hold equities. But if they are in an account you rebalance frequently, say quarterly, they can really boost your returns. Just have to make sure they don’t ever make up too much of your portfolio

[@DrivenA111]

What did you mean by “rebalance”?

[@RogerGoodeII]

@@DrivenA111 Let’s say you have 2 equities in your account and you aim to have 50% of each. Over time, inevitably one will out perform the other and you will no longer have a 50/50 split anymore. At that point you sell out of the one performing well and buy into the other to get back to 50/50. You can do that on a set interval to keep your risk a bit lower in your account. Consult with a professional because I am not one.

[@No-wt3mf]

I come back to this video every time my leveraged 3x etfs skyrocket

[@theowenssailingdiary5239]

Same

[@blahbleh5671]

Imagine being so proud of your ignorance.

[@julianvescia4673]

the msci usa daily 2x lev has a positive performance over the last 15 years and a sharp ratio of 0.89. If you dont care about volatility and are able to take the pressure, then it is a great choice.

[@marka5968]

On the other hand, by the opposite of the volatility drag, if the market goes up 10%, then the triple levered would go up by more than 30%. So, triple leveraged doesn't go up 3 times but more on the long run.

[@rabidlorax1650]

Of course, otherwise it would be an arbitrage opportunity.

[@joeblow2069]

I never have and never would short a stock or fund and agree with the video on that. Never buy an inverse fund you can lose many times your basis. When you buy a stock or fund long the most you can ever lose is 100% of your investment. Shorting stocks you can lose much more.

[@jasonu.7194]

I started buying 3x leveraged investments (TQQQ,UPRO,UDOW) starting Dec 2019 weekly every single week on Fridays as an experiment. I held them during the Corona market and it was pretty painful, but I kept buying. I sold out of my positions in Jan 2021. Effectively I made 60% TQQQ performed wonderfully, but still not 3X of what QQQ did. The other two did not perform as well. I think the risk is not worth it to have a substantial investment in them, but I still hold a few leveraged funds like QLD, SMPIX and INPIX. Also, I think the 2X actual performance is much closer then the 3X funds.

[@jacobparks2269]

What was the reason for selling in jan of 2021 that just sounds silly? the market has done nothing but go up.

[@eaglesoverfi3352]

Plain Bagel- 7:34 is not possible- a 34% drop in the market is literally impossible. Due to the flash crashes in 2010 and 2012, any drop in the SP500 of 20% stops trading for the whole day. That is the final of 3 circuit breakers. Circuit breakers 1 and 2 are at 7% and 13%, entitling a 15-minute pause at each breaker. In Covid, we tripped these circuit breakers, and all trading was halted.

[@RyanLasek]

This is a really good video, but, my tendie brain is not convinced. Since the high point before the covid dip, VOO is up 26.71% and UPRO (a 3X leveraged S&P500 ETF referenced in this video) is up 41.60%. Sure, it's not 3X the return, but it's still incredible. The negative drift bias of leveraged ETFs is all well and good, but, assuming a long time horizon and assuming that the S&P500 continues to do decently (which is a massive assumption ik ik), I don't understand why the negative drift bias can't just be dismissed as completely negligible. As for the -34% drop example, don't a bunch of exchanges e.g. the NASDAQ halt trading to protect the coke-sniffing Wall Street traders from losing their money in risky financial derivatives? Wouldn't that also apply to the underlying derivatives in a leveraged ETF?

[@ConsumeristScroffa]

That's my thinking too. Can't see any reason this wouldn't work in the long term other than the possibility circuit breakers don't work and you are wiped out, which is highly unlikely. Have you bought it yet?

[@Etaoinshrdlu69]

You could have bought at the peak in July 07 SPY for $154 or $12.52 SSO. Assume $10k invested. You would now have $39K if you was in SPY or $80K if you was in SSO (2x leverage). And that's surviving the great recession, the euro crisis, the 2016 flat year, the covid crash, and the 2022 six month draw down.

[@MattRoszak]

I read somewhere that if you want to use these kinds of ETFs for the long-term, you have to be prepared to get back into the same index after a couple of complete wipeouts, and if you can do that, chances are you'll do pretty well. But I doubt many people have the stomach to stick to the same strategy after going to zero a few times.

[@gregloire1]

Complete wipeouts are highly unlikely because they're only leveraged to daily movements. Even if the market keeps dropping day after day, the fund is essentially selling off its positions as this happens, so a 33% total market drop isn't going to wipe out a 3x fund (unless that 33% drop happens in a single day).

[@MattRoszak]

@@gregloire1 Oh hi, Greg. Fair enough.

[@seanhutcheson7638]

@@gregloire1 that being said, the S&P cannot drop 33% in a single day, circuit breakers kick in before then.

[@lewissteely927]

If you really know tge game you can play the inverse leveraged ones too ...thats gordon gekko level 💩 though

[@gregloire1]

@@lewissteely927: Yes, I have been shorting inverse leveraged ETFs since 2012. It works; it's how I've made most of my money.

[@doesntmatter7774]

Using your example, a 1/2 x fund would show positive long-term returns while the underlying fund traded sideways. Would you buy a fund that delivered 1/2 the daily returns? If not, then can you explain why you believe a 1x return is optimal?

[@EthanCowlbeck]

If you correctly predict that an index will remain stagnant, yes. But let’s define what a 1/2 leveraged ETF would do by nature. Investing $1000 into one is like investing $500 and keeping the other $500 in cash, and then keeping those amounts equal at the end of every day. Yes, there’s a better chance that it will yield a positive return over a given time period, but the fact that the index itself doesn’t experience decay since it’s not leveraged means it’s probably the best investment without being too aggressive. Basically, choosing between 1/2x and 2x is a prediction of market volatility, and at the point you’re truly able to do that, just gamble your investments into options

[@doesntmatter7774]

@@EthanCowlbeck Your analogy of a 1/2 EFT is incorrect. You're forgetting, the multiples are based on a daily return and so compound daily. If the 1x ETF returned 2% every day for 10 days, your $500 invested would become $500 x 1.02^10 = $609.50. Add in the other $500 you kept in cash and you have $1109.50. The 1/2x ETF would yield 1% per day over the same 10-day period, so your $1000 would become $1000 x 1.01^10 = $1104.60 You could view the choice between a 1/2x and a 2x as a choice based on your prediction of volatility, but there are much better ways to capitalize on correct predictions of market volatility. So again I ask, why is 1x optimal? I'm not trying to predict the future. I just want to know why, if you've already decided which underlying asset you're going to buy, wouldn't you choose some other derivative that yields a multiple return (either more or less than 1) of that underlying instead of just the underlying? Also, this "Decay" talk is a figment. The share price is the share price. If you bought and held 1 share of UPRO in 2011, you own 72 shares of it now. The fund managers don't steal shares. Their fee is reflected in the trading price If the markets stayed perfectly flat, the fund would ultimately go bust. But that hasn't happened in the history of ever, so hedging against that seems very silly. It's also true for every ETF, as that is how funds collect profits from managing the assets.

[@reelreedymusic]

There is money to be made from inversed and leveraged efts. The ones I use rebalance daily. They are mainly used for day swing trades. I invest in mostly nasdaq 100 companies across all sectors. When my portfolio drops on the day then starts bulling after a couple hours, you buy leveraged efts at a discount. Basically buying at open, is a losing bet. It is very rare we get daily candles without a wick on nasdaq efts.

[@stateoftheart9167]

What I don’t get is that if you check one of this leveraged ETF in a determined time span, almost always it beat the index it refers to (specially if you check for more than one year period). e.g.: You invest X and after, say, 5 years, you get 10x (while the index is just 2x…). Where is the trick? I mean, you can see retrospectively, that this is true for any given period you check…

[@brock5946]

Have you found the answer after 2 years brother?

[@josephlance9262]

Because I think Richard might be being a little too harsh on this one. As long as you don’t buy while the 3x etf is near ATH, you should be able to get a good return. Probably only buy during corrections/ downturns, and it should be much easier to make a profit in the long run

[@adamcaruso6345]

Ian Ayers and Barry Nalebluff of the Yale School of Management disagree. I’m long on 55% TQQQ and 45% TMF rebalanced quarterly. 9+ month results on my channel, more to come.

[@PeteBuchwald]

I am hearing of studies that conclude the opposite, though I cannot cite them (I'm researching now). I appreciate the clear presentation of why a 3x product is not truly 3x, but if I pull up any long-term comparisons of SPY vs. UPRO, QQQ vs TQQQ, or SOXX vs SOXL ........ I would prefer the returns from the 3x leveraged products. Respectively the five year returns would have been: 86% vs 261%, 155% vs. 539%, 207% vs 409%. Pull up any long-term charts, side by side, and tell me why the unlevered is better than its levered counterpart. Not trying to be a jerk of a critic, truly just trying to understand and be wise with my money. Thank you for your well-done presentation, with very helpful graphics!

[@Mr69elco]

I have the same question and came to the same conclusion as you. Have you done more research on this?

[@InvestingAlex]

@@Mr69elco Their math is just 1 math that affect the price movement of leveraged etfs. Price movements of stocks are more complicated than just saying a 1% up after a 1% down is a lower value. They also forgot to tell you about the downside is limited to nearly 100% but the upside is essentially unlimited. Also compound interest works its magic on the way up. Sure there are some risk in buying leveraged broad based diversified ETFs and a little extra cost too but so does trading options or any other derivatives.

[@AlfonsoDiSaliz]

That's what I thought, I don't know why many want to limit you from buying these ETFs, as long as you have read and researched what they are about, so go ahead

[@gyanaavaibhav]

Yeah same here I mean the 3X leverage ETF 7.9X money when the Normal did 2X also to be more careful you can do a sip to avoid the jargon of getting bankrupt plus 34% in a day is just impossible his study is counting in for short term and not long term when the market is bullish which it always is after a good crash if you smart you can keep aside some money since beginig yes given you might lose the 3X factor and only 4X the money when the market is 2X but when the market is down 50% you have a upside potential of 150% excluding the Bulls runs that takes place after the bear hit

[@Wakooify]

I also read that as long as you don't leverage more than 2x, you are fine, some ETF like LQQ outperform the Nasdaq more often than not. Of course the risk is higher, but it's not an avoid at all cost situation.

[@dt6712]

what if you DCA your long term investments daily into the leveraged ETF? Instead of just lump sum investing, with a high frequency of DCA, wouldn’t that help reduce your exposure to the sequence of return risk that could hurt the portfolio? Also, the broad market indexes can’t drop 34% in a day because the circuit breakers will shut down the market for the day when it drops below 13%

[@martinlutherkingjr.5582]

DCAing into an asset that’s in a downtrend is a terrible idea.

[@danaphanous]

Yes, they put these breakers in place to help panic not cause liquidity issues in the market. It doesn't need to drop 34% in a day though for you to lose most of your investment. Another Great Recession or Dot-Com bubble crash would wipe most of the value out of these funds. We have not had a single year with a consistent bear market downtrend since 2009, which makes these funds look good. But history shows that worse things can happen. If the Fed hadn't stepped in with unprecedented asset buying and Congress with stimulus bailouts, these funds might have gone to zero in 2020. Note that pretty much all of them started AFTER the great recession. Do you think the idea didn't exist back then? No...these funds went bankrupt back then and the product had to catch on all over again in the next bull market.

[@dt6712]

@@martinlutherkingjr.5582 well doing a lump sum into a downtrend is worse. Most people will agree that long term the market has a net positive outlook so the idea is that your DCAing into a long term uptrend. I just think there’s an argument to be made that DCAing into leveraged ETFs over a long time horizon could mitigate some of the risks associated with volatility & variance and possibly lead to better returns but not sure if they could deliver higher risk adjusted returns.

[@dt6712]

@@danaphanous I agree you can lose a lot of your investment in a short period of time but you can’t lose all of it. Though you could get very close to 0. That’s why I don’t think this would be appropriate for anyone with a short time horizon or without cash flows to consistently invest but I think there’s potential for it to work for long time horizon investors who are consistently DCAing. I’ve tried to research this and there are several mixed findings. Some people have tried backtesting market returns and found that it leads to higher returns than the base index even through the dot com bubble and 08 but also that it has less risk adjusted. There’s also an interesting paper by some Yale professors about how young investors with long time horizon should use leverage (in general not just ETFs) to invest because it provides time diversification for your portfolio.

[@dt6712]

@@danaphanous I agree that it worked out best for the 2010s decade and that could be an anomaly of a steady bull market run with little volatility & variance because of the feds expansionary policy but I’m skeptical on the idea that they have no place in the portfolio. I feel there could be some way they could be used to achieve kurtosis

[@wtfisthis451]

For those to truly grasp how these products work, examples would be if you have traded options with high iv, you need volatility to work in your favor. One leverage etf that has not perform well is dfen. Try buying and holding these leverage etf and see the daily fluctuation. If you had hold spxl during the drop you would have lost 75% from ath to all time lows vs spy 30 percent decline. Many beginners just look at a graph that goes up, without realizing the countless battles between that time frame. AS well declining inverse/bear etf tend to reverse split, that's why you see crazy past numbers, ex uco and uvxy

[@Sylvan_dB]

Good thing there are now (since 1987) circuit breakers to stop single-day losses (slowing and then limiting to 20%, less than 34%). Every fund is biased toward loss. The leverage factor of 1x (a normal fund) or 3x (e.g. UPRO) just multiplies that bias to loss. Then subtract the expense ratio...

[@Sylvan_dB]

@Wary of Extremes Don't know what you mean, ”if you use...”. That is just applied math. I don't think I'd say ”tendency to zero though.” If there were no growth then it would eventually round to zero. But if you invest in a profitable company (or fund) then by definition income exceeds expense and that means the value does increase. The profitable company is like a bank account that receives more in deposits than withdrawals, before you consider the company may be growing it's markets, growing it's profits. As for ”leverage less than one” that means in this context that you have less than 100% stock exposure. Think holding 10% in cash. Now you are 0.9x.

[@Diverse0725]

From chasing dividends to going all in on leveraged ETFs, thank you for talking me out of these traps

[@jzhng250]

Here's the thing, compared with taking on margin, you can go underwater with borrowing, meaning you owe more than you have. But with leveraged ETFs, you technically never lose more than your equity. If QQQ goes down 90 percent, TQQQ will not go down 180%, but rather something like 99% （unless QQQ falls more than 30 percentage in a single day which is impossible）

[@ConsumeristScroffa]

Don't be so sure about the last one. Nasdaq 100 lost 29.93% in a single day back in 1987. It could happen again and end up being more severe. However, I believe the risk is worth it if you allocate a small part of your portfolio and forget about it.

[@georgewashington9445]

@@ConsumeristScroffacircuit breakers and liquidity would stop the 30%

[@kwwk4362]

then use a 2x instead@@ConsumeristScroffa

[@nathansmith8187]

Just want to say thanks for posting this. If everybody piled into 3x leveraged index ETFs, the strategy would stop working. It's heroes like you discouraging the masses from buying in that keep my gains flowing.

[@romanbasarab5089]

😂💪🏻 People like wooooow 3x leverages are so dangerous A day after: “buys bitcoin” People are just hilarious sometimes

[@hamzak7261]

@@romanbasarab5089 LOL exactly

[@hamzak7261]

LMFAO yup

[@guywithglasses5309]

Out of curiosity, what kind of long term gains are u getting and how long have u held the position? Dont worry I have no friends to share this strategy with

[@ilovelum5849]

TQQQ is up 16,104.60% since inception in 2010. yeah, definitely don't hold it long term, that evil leverage decay and 1% expense fee is going to destroy you.

[@user-wi6vkq21k9a]

are you still alive bro? lmaooo tqqq lost over 75% of its value in 1 year. Yeah it is going to kill you one day lmao

[@ilovelum5849]

@@user-wi6vkq21k9a when it goes up another 3000% during the next bull run, it doesn't matter

[@user-wi6vkq21k9a]

@@ilovelum5849 past 3months just from vol drag tqqq lost 12.8% while qqq stayed the same

[@ilovelum5849]

@@user-wi6vkq21k9a you're guaranteed to have a 70-80% drawdown if you hold leveraged ETFs long enough. like it said, meaningless when it will do another 2-3000% in the next bull run

[@trashboys2469]

I agree with some of the points in this video. But let’s say that you have a 10% decrease. After a 11.1% increase, you break even (on normal) and your LETF has to go up 14.3% to break even. But this is assuming that the market goes down over time. Of course that’s not going to return you good things long term, but the market goes up over a long term period, and any chart that you see for the SPXL (3X leveraged S&P500) is ~300% for the past 5 years. Unless the market crashes 34% over the course of a few months (which lets be realistic here, I’d absolutely doubt it) it’ll be worth to invest into a LETF. Short term losses don’t even compare to the long term gains. Since 2008, the SPXL has risen 6,000%. So ya, it can be risky, but unless you’re in a bear market, it will always be more beneficial to do LETF’s.

[@NimishP]

As I understand from other source, one of friends, lost around $50K + in double leveraged ETF on oil. Similarly, one of my relatives lost $18K+ on double leveraged ETF on natural gas. In spite of excessive drilling and massive production increase of natural gas, he continued to bet believing upside in natural gas prices. Definitely, it is an excellent to enhance your return, but one should not deploy more than $2,000 or 3% of the portfolio, whichever is less. Also, as indicated in the video the hold period should not exceed more than two days regardless of the direction or profit is heading to.

[@chizy4446]

You all know that stock is not stable now and it at risk, investing in crypto(Bitcoin, ether etc) is the best now because with the right broker you can invest and make lots of profits

[@justinwalworth9008]

All of what he says in this video can happen...in theory. In reality markets are up many more days than they are down. Ultimately, these are just funds. With a share price. That moves based on the price moves of the underlying index. You can go back 10 yrs and look at the share price and compare it today. If you owned them for that price, that’s your return. In reality. Yes, they can drop substantially in a short period of time. You have the option of buying more at a sharp discount. You can also trim at market highs, locking in profits. They are undoubtedly higher risk funds. But they are still just a fund. I’d recommend owning the underlying index as well and stick to common options (I own TQQQ and URTY) to simplify understanding market moves, but these funds can generate great returns.

[@Quickonomics]

Leveraged _anything_ is usually not quite as awesome as it sounds... market risk goes both ways. Ain't no cheating that!

[@martinlutherkingjr.5582]

It’s useful for reducing counter-party risk in the short term.

[@rowanharley9810]

Leveraged funds have produced returns of 20% if you simply sell under the 225 day moving average and buy above the 225 day moving average. This strategy was tested all the way back to 1929

[@tiendoan1333]

@@rowanharley9810 Have you back test this in special situation (such as Japan) where stocks has remain flat/under for more than 20 years? Remember, there is no such thing as a bad looking backtest

[@carriermodulation]

I think the point is, mathematically, the market risk does NOT go both ways.

[@MichelleHell]

@@rowanharley9810 back testing doesn't take into account that you are a player in the market, making a splash. You weren't in 1929. And there's no way to guage how you would react in the moment to market movements because holding a negative position for a period of time is more stressful than fast forwarding through 100 years of history. And you should ask yourself who were the winners that did benefit? Chances are they were the institution who made those successful trades at the expense of the retailer.

[@cosmintheinvestor]

As long as you hedge, leveraged etf’s are the way to go. I love them.

[@chrisparker9672]

The key is to hold them with a safe asset. 60% UPRO / 40% TMF is a much different story than 100% UPRO. Such a portfolio was up >30% in 2020... Volatility decay mathematically implies there is an optimal amount of leverage, not that the optimal amount is 1x. The amount of daily reset leverage since 1950 which maximizes long term returns has been 3x. Hardly the "worst financial products available".

[@Jackalopemusic]

Thanks!

[@Faraz70]

There is big misconception about these leveraged ETFs. You have to have stomach volatility drag, but over long term all such ETFs have vastly outperformed their unlevered counterparts e.g TQQQ vs QQQQ, SPX vs SPY, SOXL vs QQQ or SOXX over 5 years and greater

[@seanhutcheson7638]

Correct, i’ve modelled 50 year timeframes.

[@user-wi6vkq21k9a]

tqqq lost over 75% of its value in 1 year lmao thats 20 years wasted lol leveraged etfs are only good for short term

[@bigstar66]

@@user-wi6vkq21k9a looks like 2 years wasted considering it's already back to where it was. Still up 350% in the last five years.

[@flame6691]

if you have the same number on return a bad and a good day ETF: C*(1+a)*(1-a)=C*(1-a^2) ETP 3x lev: C*(1+3a)*(1-3a)=C*(1-9a^2) ->you lost 9 time as much, not 3 times like you mention in the video. It doesnt make 3x risk and 3x gains. Its just a super risky product with not the same improvment in the gains side^^

[@lainstructure]

you are counting loses. if you calculated wins that wat you would win 9 times as much too.

[@flame6691]

@@lainstructure True my example is wrong. But i wanted to show if you have 2 even days, you are losing

[@inconvenientexistenlism]

Thank you. This was exactly the video I needed as I was very tempted to invested in a triple-leverage ETF.

[@joeblow2069]

You buy the funds cheap. Duh. The direxion daily biotech fund LABU is currently selling at $103. That fund based on an index of 131 biotech companies. LABU sold for over $1000 a share for 2 years from 2017 to 2019 and again over $1000 a share for 18 months from 2020 to 2021. I bought LABU @ $90 with the hope of selling around $300 or so. That is well below the average price this fund has traded since the fund started in 2016 and it has traded over $2000. Of course I am bullish on that sector and I'm able to tolerate volatility. I'm not greedy the fund's all time high was $3800. I'm just looking to turn $100k into $300k after taxes and then I will transfer into a solid non leveraged fund like BME.

[@samsonsoturian6013]

Caveat: The S&P is green 53% of days, meaning the daily compounding is slightly in your favor for ETPs tied to it, but that's probably only going to cover the higher fees.

[@urinater]

Actually it was 57.2% up over the last 251 days (trading year). And between 0 and 1.5% up for 50% of those days. And between 0 and -1.5% for 37.2% of the negative days. But was between -1.5% and lower for 5.6% of the negative days. So on some days, you would have lost big and would have been harder to recover due to “break-even percentages” being higher. Sorry to bore you but it’s important to know the details behind the stats.

[@samsonsoturian6013]

@@urinater I forget where/when I read it but the stat I read was for the previous year. Either way, same result where daily compounding works in your favor just a little.

[@LordOfBrownies]

Richard: There's a way to multiply your ETF's return. Me: Yeah, just invest more money LUL. Richard: Just invest more money LUL. Me: :O

[@KirstenB76]

😂

[@skydragon3857]

LUL

[@peercents8561]

What about something like NTSX? Wisdom Trees 90/60 Equity/bond portfolio, essentially a 60/40 levered 1.5 times. It rebalances quarterly. It seems that a 60/40 portfolio has a better risk-adjusted return than 100% equities, but it suffers from not enough risk or return for most people's tolerances. By levering it up to 1.5x, it's supposedly a higher return than 100% equities at lower volatility.

[@danaphanous]

Like all things, a product works when the market trends are in its favor. For 10 years the equity market has gone up and the interest rates gone mostly down (causing bond prices to rise). This product will not do well if one or both of those trends reverses.

[@NapalmXD]

I don't understand the math used at 8:20. The leveraged position is not changing the % return, it's only changing the capital. $1000 *1.02 = 1020 *0.981 = 62 cent profit. $1000 leverage creates 3000 capital so 3000 * 1.02 = 3060 * 0.981 = $1.86 return. The x3 ETF would have a greater return with alternating 2% and -1.9% days. I think the information in the video is just mathematically incorrect because it is multiplying the return % and not the capital. Can someone explain the mistake I'm making or is the video just wrong?

[@ThePlainBagel]

The goal of the leveraged ETF is to multiply the daily return of the index, so they are in fact adding a 3x multiplier to their return. Their strategy is a bit more complicated than just putting 3x the money into the investment (I didn't really dive into the details). So the math would be $1000 * (1+(0.02*3)) * (1-(0.019*3)) which gives you $999.58. Hope that clears it up!

[@NapalmXD]

@@ThePlainBagel Can you dive into the details? Without understand what method is used it's just an empty claim and doesn't help me in my decision making. According to Investopedia: Leverage results from using borrowed capital as a funding source when investing to expand the firm's asset base and generate returns on risk capital. I don't mean to put words in your mouth but for the sake of being able to talk about this I need to simplify the ideas into two categories. You're basic claim is x3 leveraged ETFs don't actually use leverage, instead they are trying to replicate the effects of leveraged with an investment strategy, is that correct?

[@ThePlainBagel]

​@@NapalmXD So yes, leverage from borrowing money is as you defined, but when it specifically comes to leveraged ETFs, they often use a combination of loans and derivatives to structure themselves in a way that multiples the return they experience. As an example, you can see on the page for UPRO that in the first line, the objective is to multiply the return, not the capital: www.proshares.com/funds/upro.html The short of it is that derivatives involve "indirectly" borrowing money, and this sort of changes the payoff dynamics. You aren't really taking out a loan, you're just agreeing with someone that if something goes up, they'll pay you 3x the return, and if it goes down, you'll pay them 3x the return. The leverage comes from the fact that you don't need a deposit equal to the possible amount you'll have to pay in the end; so while you may end up owing, idk, $1000 because markets go down, perhaps you only had to deposit $500 to begin with. Hopefully that makes sense

[@NapalmXD]

@@ThePlainBagel Yes, thank you. This is very helpful! Do you happen to know if there is another name or a type of fund that limits it's self to only using leverage in the form of loans?

[@seneca983]

@@NapalmXD Even if the ETF were to actually use loans the result would still be the same if it also rebalances daily.

[@WorldinRooView]

Ah, so this is like the Kaio-Ken technique from Dragon Ball Z. 1) Will stretch your dollar's power, but if poorly timed will leave you in a much worse position than if you didn't use it. 2) Recommended to use in short bursts rather than prolonged periods 3) King Kai will berate your for going beyond times 3.

[@kannami1273]

I dont know if you will be able to read my question but around 7:50 you said that if the etf drops by 34% then your 3x leveraged etf investment will go to zero but even if it rises to 50% or even 100% it will still be zero because 0 times any number is still zero, I’m confused because even though you didnt sell your shares of the 3x leveraged etf how come you would still have 0 amount of money? Hope you read this and explain.

[@lincolngaffney9785]

They would be destroyed during a bear market.

[@IncaWarrior.]

Unless it is an inverse leverage ETF

[@darius2640]

sike! there is a derivative for that too, M. Burry just loaded up on bearish inverse ETFs for U.S. bond market. Basically if you can think about a strategy, as obscure as it is, wallstreet b(w)ankers got 10 instruments for it already

[@Reon89]

if you know that its a bear market then why not put money in the inverse ETF?

[@JP-vi4ig]

@@darius2640 I believe burry loaded up on leaps for tbt.

[@Mertain420]

I made $100,000 this year swinging the SOXL, but if you just bought in at the start of the year you'd be seeing poor returns. Also I got lucky. Definitely not a cheat code, but it can be a fun 'challenge run' to continue the video game analogy. Also, thanks for making all these videos! They're a great resource!

[@picassosparks]

Something that I wish you’d deal with in this video is: what’s so special about 1x leverage? All the arguments for why 3x is worse than 1x apply equally well to 1x vs 0.33x.

[@rabidlorax1650]

True

[@T-Investments]

True I did not understand the math of having 100 QQQ vs 300 QQQ(100 TQQQ) why people say its bad of having more QQQ in the most of the comments

[@ThePeterDislikeShow]

In fact, most of us are doing something like 0.8x leverage. We hold some dry powder in case the stocks dip and then we buy more getting back to 0.8.

[@sachinnair1613]

What if you split your portfolio between stocks and bonds, but 2x leverage both sides? For example, I'm looking at investing 55% in SSO (2x leveraged SPY) and 45% in UBT (2x leveraged TLT). The bond exposure pretty much makes up the risk of the 2x SPY fund. According to backtesting since 1985, this would return about 3% more than the S&P500

[@florianf2718]

The only financial product where timing the market beats time in the market

[@WakeUpBuildUpLevelUp]

I am viewing TMF currently. What is considered a long-term hold on these leverage positions/typically too long on average? Does safety change at all when you are viewing a 20 year bond etf versus others? And I understand that nothing is guaranteed thank you for the insight.

[@seneca983]

Have you seen Wallstreet Millennial's video on this subject? He considered investing in the Direxion Daily S&P 500 Bull 3X ETF. With historical data, it would even in the long run greatly outperform the SPY ETF despite volatility drag. It might be worse if only made a one-off investment and the timing was bad but with dollar-cost averaging you'd still be better of than with SPY. This got me thinking, would it be possible to make a leveraged ETF with long-term investing in mind? It could maybe contain stocks from multiple countries for better diversification and maybe weigh less volatile stocks more. Also, it might not need to fully rebalance daily to mitigate volatility drag.

[@_ipsissimus_]

i actually have been in it for a while. i commented about it above. looking at direxions other products, i really liked DRN which is there leveraged real estate etf. of course as this whole video says. Its not a fairy tale, but its performing for me, for now >:^]

[@HaloDude557]

Yea I don't really understand this video when leveraged clearly outperforms nonleveraged extremely well when the market is pumping.

[@seneca983]

@@HaloDude557 Though you should remember that some other leveraged ETF have probably underperformed the related index.

[@Kenzopoint]

For long term , what if you dollar cost average ? or buy the dips? (relatively)

[@EzraWildes]

So why has TQQQ vastly outperformed QQQ over the (relatively) long term since its inception. The same is true with the levered s&p500. Can you please explain? Why wouldn't it be smart to invest long term in one of these highly risky levered ETFs?

[@goodfamily5815]

If you’re are long term bullish, and are okay with large losses it is the way to go. I’m putting a lot (and have been) into TQQQ and have gotten about +35% recently.

[@whitejodeci8926]

You are looking at the reported annual returns, which are not reflective of the real daily returns. He explained this clearly in the video.

[@duckhuntergaming4713]

May I ask, what if you borrowed the money on your own and invested it on an etf. I do not know how long term loans are and how high the interest rates are, but if the return is higher than the interest rate plus the inflation rate couldn't this work? You'd be essentially leveraging by yourself. I'd be interested to discuss this.

[@jwh2f]

You did a great job explaining this. Most people miss the central math principle that a 20% increase followed by a 20% decrease is a net negative.

[@DiaJasin]

Yeah a 99% increase after a 99% decrease is just making ~1 dollar after losing 99 dollars

[@jacobparks2269]

20% decrease followed by a 20% increase also equals a net negative.

[@csanton3946]

But the market has more ups than down movement and so you will still be gaining even if you want one time correction once in a while however what made these a problem is the fact that every gain, the leverage is repriced and so you take on more debt because the value of ur equity increases instead of those equity gains slowly paying out the debt and de risking your portfolio, If this is a closed fund I'm sure that would happen, you want to be derisked as much as you can while enjoying the gains however since this is an open fund where anyone can buy anytime, the leverage is being used to promote the product, I guess it goes back again to the timing in engaging with this vehicle

[@InvestingAlex]

@@jacobparks2269 ​ @Jacob Parks Sure anyone can say that. But for example, the TQQQ does not necessarily have to increase the same % after it decreases. The QQQ is the underlying, which is driven by supply and demand and TQQQ basically mimics that for the most part x3. Lets imagine if QQQ was $1 and there are $trillions of $ wanting to buy it do you think it would just go up by 100% after it decreased by 99%? And here you go, this is the part you are missing out buy just looking at a mathematical fact amongst many that is driving stock price movements.

[@bayan01pdf]

thanks to you im never buying a leveraged etf ever

[@chamericks]

So purchase a 5:1 ratio of TBT:TLT and sit on it until EOY? Got it, thanks bro.

[@JehanKateli]

Take a look at the 10-year history of leveraged ETFs like TQQQ and UPRO. They're volatile, but the returns are amazing. This is why TQQQ is currently my biggest holding.

[@Calle19881]

nearly every index looks shiny when considering the last 10 years... but its a best case scenario

[@chantalcalima5251]

The evidence speaks for itself. Consider this: if you had invested in $UPRO on 1/2009 and held onto it, your investment would have multiplied 38 times over! This is not just speculation or hearsay - the numbers prove it. Additionally, it's important to note that the likelihood of a 33% drop in the S&P 500 in a single day is extremely low due to the implementation of "circuit breakers" that halt trading once the market drops between 7-13%. While you may have concerns about levered ETFs, it's important to base your decisions on reliable data and realistic scenarios, rather than relying solely on sensationalized and cherry picked narratives.

[@abc18792]

Excellent video, I was thinking in this so hard because I didn't get it how this works, but thanks for the useful format of the video I got it so quickly. Thank you for the info!

[@vincentpoirier8752]

Thank you for the video Richard. How about SSO (ProShares Ultra S&P500) ? This leveraged ETF returned 249% in the last 5 years compared to 101% for SPY. It also performed much better on all other time frames... What am I missing? Thanks. I enjoy your channel. Keep up the good work :)

[@jakel8627]

I have VT a 3x leverage since September 2022. So far so good.

[@peterlikesfriedrice]

You have a lot of great videos. I'm gonna disagree with your ultimate conclusion that leveraged ETFs are bad. Your opinion is actually quite common on the internet. But it doesn't mean it is true. It is after all an opinion. Backtesting real data shows massive returns for most all period of the market. To get around the bad luck of bad timing right before a market crash, that is where dollar cost averaging comes to the rescue. Opinions don't trump real world observation through back testing. Furthermore, if one were to liquidate when the price actions dips below the 30 week moving average, that would avoid the deepest pains of all recessions.

[@thealternativecontrarian9936]

every time I put money into TQQQ, SOXL, and others for a long term my balance goes up. Yet these people can't seem to explain this unusual phenomenon......

[@ZachTank2009]

@@thealternativecontrarian9936 your anecdotal experience is not nearly as powerful as the backtesting that Peter Chen is referring to, considering you are doing your investing during the longest bull run in market history. I did a spreadsheet test where I created a daily rebalancing 3x leveraged tracker of the S&P and even with the worst possible timing, consistently investing in the 3x leveraged tracker outperformed doing the same in the underlying index, by at least 70%, and in the best case (following the prolonged postwar boom into the early 1970’s) consistently investing in a triple leveraged etf of the S&P 500, had it existed then, would have netted the investor an astonishing 38x greater return than the already impressive returns produced by the market. I’m currently not invested in a triple leveraged account because if you can avoid being in one during a correction you will certainly improve your long-term return, but once the market returns to more rational pricing, I intend to buy and hold SPXL for the long term.

[@thealternativecontrarian9936]

@@ZachTank2009 I am now all in 3x ETFs and see no reason to be elsewhere. When long I like SPXL, TQQQ, SOXL, DPST, and HIBL. Just those five. When short I like SQQQ, SPXS, SQQQ, HIBS, and FAZ. I might add URTY once in a while.

[@ZachTank2009]

@@thealternativecontrarian9936 i don’t have the stomach for holding triple short positions. I held one throughout April 2020 thinking the market wasn’t done falling and it’s a special hell getting eaten alive while the market rallies, so I have decided that my “conservative” approach is when the market is overvalued (Shiller PE greater than ~35) I buy and hold the base index (VOO) and when the market is undervalued (Shiller less than ~25) I buy and hold SPXL. There’s a deadband in the middle there, which we are currently in, where momentum plays a factor - I currently think the market is headed downwards so I continue to hold my VOO position, but once the Shiller hits 25 im going to be putting all of my efforts towards rolling as much money into triple leveraged long positions as I can, including taking on side hustles, selling stuff, whatever it takes.

[@thealternativecontrarian9936]

@@ZachTank2009 sounds like a decent plan. I've been following a different KZbin channel that has been excellent at calling tops and bottoms, so I have a general idea on when to stay long and when to short. I watch probably five channels every evening.

[@islandinfluence231]

subscribed! the way you break everything down is so manageable to digest. Thanks!

[@svadhisthana8867]

All of my leveraged ETFs are doing great. The trick is to buy when they fall, so you only get them when they're cheap.

[@rameshsharma8087]

totally agree - best when bought cheap, they have worked really well for me too.

[@johnsuckher3037]

imagine amplifying falling percentages is being called cheap buying

[@horizon2150]

Do yourselves a favor and actually backtest how a portfolio performs with 20-30% in TQQQ and the rest in the market versus just S&P500 portfolio. Also, backtest 30% TQQQ and 70% GLD (neg correlation during the hard times). I think the results are illuminating especially when the max drawdowns are similar to just the market.

[@goodfamily5815]

The problem with this video is that is is only interested in looking at the losses. Sure they can be high, but if you’re okay with that and bullish then there’s no reason not to hold long. Also the 1% expense ratio is negligible since you’re literally getting 3X return and time decay often works in favor of common leveraged ETFs.

[@morganharris2413]

Yeah y’all keep telling yourselves that. I’m putting everything I can into TQQQ right now. I’ll be adding 60% of my income every month until it hits $40 per share and I’ll hold it until I’ve tripled or quadrupled my initial investment, cash out and put a downpayment on a mansion lol.

[@Sammich4839]

TQQQ has done amazingly in 2023. I'm long term 20 year hold but for TECL

[@colbycalabrese8417]

Very helpful video, but I'm confused at the returns of some of these such as TQQQ. It has gone up 19,149% since its inception in 2010. It is positive over an 11 year span. I'd consider that fairly long term. Are you saying if you put money into it in 2010, you would have not actually seen that 19149%?

[@proauthorblaise]

That's the thing - you WOULD see those massive returns. This video basically explains what happens in bad market conditions, not in the good conditions we've had in the past 10 years. Historically, TQQQ would've made you rich. However, many people don't like the idea of what would happen if the market started trending down or going flat. Obviously, leveraged products have more risk, but if the market is good, you stand to make considerably more on them than you'd make otherwise.

[@a-t5380]

@@proauthorblaise if you hold and the market bounces back.. Wouldnt you be fine?

[@thealternativecontrarian9936]

@@a-t5380 yes. Look at the exampel of March, 2020 during the Covid surprise. Look at TQQQ, SPXL, and SOXL and you'll see that when the indexes come back, the ETFs do too.

[@joshuaneave7865]

Whoops I’m dca in nvdx 😔 and still willl keep doing it

[@ameenbigger9492]

What you failed to mention is the circuit breakers on the stock market at 7% 15% and 20%.So the market will never have a day where it's goes down more than 34% percent.Second please explain 06/22/2009 when UPRO started up to today. ITS UP OVER 5,100% while the SPY is up 352%. Yes your correct that it may take longer for the leverage to gain back its losses but what I'm noticing everyone who talks about this says the same thing using the same 100$ example over 2 days.Test it over a year

[@RedOneM]

Yep the daily negative compound can be dangerous, held since december onto Tesla Bear 3x & 2x derivatives and didn't get expected returns. Managed to close the 2x in the green, but simply shorting the stock would have been much more profitable for me. Too bad I haven't gotten onto a platform that has the ability to sell short.

[@eyeonrecovery8319]

This video has some errors. The S&P can't drop more than 20% in a day without the market being completely shut down so a 3x S&P 500 fund would never reach the >33.3% drop needed to be completely wiped out like it sates in the video. Also, do a search for how a 3x S&P 500 etf performs over the last ten years. vs. a non-leveraged etf like VOO does. The leveraged etf wins hands down. When looking at long term hold of leveraged etf, volatility is your enemy, but a leveraged etf based on a low volatility index like the S&P 500 can be fine. There are also funds and etfs that do 2x leverage with monthly rebalance as well.

[@unnamedny]

You are assuming leveraged ETF is based on S&P 500 where circuit breakers work the way you describe it. If it's not an index based EFT, then losing most of your money is totally possible.

[@eyeonrecovery8319]

@@unnamedny the whole video is based ion the s&P 500 and if you are going to invest in a leveraged product then you should do something that's based on the S&P 500 or close to it as apposed to an energy or biotech leveraged etf.

[@seanhutcheson7638]

Correct, not only the last 10 years, i’ve modelled 50

[@givrally]

My simplest mathematical argument against leveraged ETFs is this : Imagine it goes up by x and then down by x. In the end, you have (1+x)(1-x) = 1-x². So if it went up 1% and then down 1%, you're down 0.01% total. However, if it goes up kx and down kx, that's 1-k²x² instead. So you lose 9x more with a 3x leveraged ETF, and it goes up with the square of the factor. If instead of centering at 1 you center at y and you wanna know how much deviation will even things out, you need to solve y² - k²x² = 1, so x = sqrt(y^2-1)/k. Ignoring everything related to y, this means your window of deviations is inversely proportional to k, anything outside of that will be a loss. So yeah, this is a massive risk.

[@ashtoss]

What if one buys when VIX is 80 and markets have bottomed. SPX 3X would do wonders when bought In the dip.🤔

[@plumeater1]

You can time the market, but also the market will time you out.

[@ashtoss]

@@plumeater1 Lala, Risk hai toh IsK hai.🥃

[@unnamedny]

timing market is not easy, just because market falls 20% it does not mean it will stop at that mark. Stay invested in quality growth stocks and you will be a winner over period of time no matter what.

[@Somuchgam]

When having equal exposure to the market, using leveraged ETFs actually reduces your likelihood of losing it all to 0%. If you have $3 in an index fund you could lose $3. If you put $1 in a 3x leveraged fund you have the same exposure to the market but you can only lose 33% of the total money

[@ThePlainBagel]

That logic isn't entirely sound; the $1 in a 3x leveraged fund is also more likely to go to $0 than the $3 in an index fund.

[@Somuchgam]

@@ThePlainBagel True. But I'm comparing $3 in an index fund to $1 in a 3x leverage fund and $2 in cash. $3 total either way, and $3 of exposure to the market, but the second option will never lose more than 33% of its value (assuming the value of the currency stays constant)

[@gabrielmaharaj5241]

@@ThePlainBagel "isn't entirely sound " 🤣🤣

[@margaretlou3993]

Just stumbled on this. I thank God I got my act together and took my trading seriously. It’s not been easy but getting into the market turned out to be rather rewarding.

[@margaretlou3993]

@Alina Lopez I know that learning the ins and outs of investing is not for everyone. Personally, I trust Levi Clemans. You can reach him through

[@margaretlou3993]

@Alina Lopez Leviclemans(a)Gmai Lcom...Is he taking commissions for trades? Yes, I’m I still making money in the process? Hell yes!

[@Roymysterio]

Clemans is a great resource if you're looking to enhance your investment portfolio and gain by participating in the ETF market!

[@Carpenglerrr]

As I go deeper into the market with Levi’s help, the more my portfolio focused more on income and the preservation of capital. That a higher allocation in less risky securities, such as bonds, that will give me returns, and still stock. Thanks to him, these securities provide income that I have used to live on without having to touch my savings.

[@gitarzzan1]

I’ve purchased at top of market in 2021….. and held thru the bloodbath of 2022…. And Into now…. Keep dca into these when they are down.

[@mpower2386]

I found that leveraged ETF are most useful to build a diversified potfolio, where you can control your beta, specifically in a TFSA where you are capped in the amount you deposits and where you cant use futures or a margin account. Edit: of course you have to account for the extra fees and the levered compounding effect vs the added diversification benefits you could potentially obtain, nothing comes free...

[@spidercart4745]

That’s a terrible idea

[@mpower2386]

@@spidercart4745 please elaborate

[@spidercart4745]

@@mpower2386 TFSA’s are meant for long term hodling… with minimum withdrawals…. Literally the opposite of what leveraged ETFs are for

[@ACHILLES1GREEK]

TQQQ at the ATH from 2010-2022 (bull market) did over 20,000% if you held from day 1. I agree with the video but not sharing the potential of long term strength on the x3 trade in comparison to what QQQ did in the same period (700%) is slightly skewed. I think investors would do well to balance in both.

[@SergeMavro]

On the long run ETF goes up, not down. And it goes up exponentially. Also there is no margin call if it goes down, so as long as you don't sell and retain your shares, you are fine on the long run.

[@chelseafc8126]

Not really.. there are cases in which an S&P 500 stock ends up gaining money (positive returns) while its corresponding leveraged ETF actually loses money.. Volatility, especially sharp ones, are the enemy.

[@colt_45.]

So what if you buy the dip? The market (over time) has always gone up so if you buy the down days, can the daily “falls” actually amplify the up days?

[@feynstein1004]

So I just watched some other videos about leveraged ETFs and some people say that buying them with a 10-15% trailing stop (i.e. if the market drops below that value, you sell automatically) can mitigate a lot of the risk and make the investment worthwhile. Could there be any truth to that? 🤔

[@CalSticks]

When do you buy back in? That’s the hard part

[@feynstein1004]

@@CalSticks Well, from what I know, the trailing stop basically acts like a valve and protects you from downturns. As long as that's true, it shouldn't matter when you buy back in. Unless, of course, you were unlucky enough to buy the second before the stock starts dropping.

[@CalSticks]

@@feynstein1004 that’s correct - the trailing stop will close out your positions. But then you are no longer invested, and have to decide when to buy back in. I say “that’s the hard part” because it’s very difficult to identify when the market has stopped dropping and can be expected to recover - after a drop of 10-15% it wouldn’t be surprising if that was actually quite close to the bottom of the dip and for you to risk missing the ‘recovery’ while waiting for a further drop.

[@feynstein1004]

@@CalSticks Ahhh okay I see what you mean now. But prolonged drops in the market should be relatively rare. So this strategy should work most of the time, I think? 😅

[@feynstein1004]

@@chase-warwick That's a good point. I guess there's just no way to do it lol

[@michelbruns]

This video sounds so funny when tqqq achieved more than 10x the returns of the ndx in the last fee years thanks to compound interest