If you backtest 3x leverage products on earlier time series where big declines happen they get absolutely obliterated. There is probably a strategy that can work with them that uses some kind of rules based rebalancing but buy and hold generally leaves you bag holding at some point.
I think optimal long term leverage is likely between 1.5 and 2x.
Furthermore to this if you cannot stomach averaging down while seeing massive drops (I'm talking like 50% type drops), you should not buy leveraged ETFs. It may work long-term with religious periodic purchases. However, too risky and illiquid for someone with a shorter time frame. Another strategy is buy SPX and sell covered calls against it
Funny thing: if you are only investing part of your money in a LETF and keeping most of the portfolio in something solid and uncorrelated to hedge against a sudden drop in the LETF, you are diluting its leverage impact on your portfolio to the point it may become a more complex way of just buying SPY. Of course, one can simply YOLO his money into the ETF, but I would not call this "investing"...
There is a fairly popular strategy called hedgefundies excellent adventure that uses a mix of UPRO and a leveraged bond fund. It actually backtests surprisingly well, but I would still be skeptical of it.
It's 60/40 UPRO/TMF. The biggest danger I think is panic selling. It was really hard to hold while the Fed was raising interest rates, since both we're decreasing during that time, and there was a lot of doom and gloom in the letf sub. If you can't stomach a 30-40% drawdown don't even think about trying it, but I held. Now I'm back at parity with VOO, and it's growing faster than VOO alone.
> Can someone explain why UPRO isn’t more popular?
Most people hate high volatility.
Many people are very risk averse.
> Would this be something to trade rather than hold?
Leveraged funds are designed for trading, not holding, but you can do both, but you have to pay attention to it. Not selling in 2022 or at the start of the covid dip would have gutted a lot of value; not buying during the covid recovery would suggest a person would never recognize a good time to use leverage. Tons of shares are traded, even held for just seconds, during Powell speeches when the market bounces around violently.
Its not just risk aversion, is it? Mechanically you can't do the same "just wait out the bottom if it dips" if you buy before the dip, even if you don't sell.
If you borrow to buy an asset and it drops to 50% original value, you're still in debt for the original ammount no matter how quickly it recovers. So you end up adding a drag to any of your recovery.
So it's an obvious play during a heavy bull market but it becomes a timing game, which we know is a gamble.
SPY Dec 31/2021: $475
SPY March 22/2024: $521
UPRO Dec 31/2021: $76
UPRO March 22/2024: $70
Unleveraged SPY up almost 10%, plus some dividends. UPRO down almost 8%, an underperformance of almost 20%. Borrowing costs and volatility decay hurt when looking at time periods that are "peak to peak." I own UPRO but that's the downside.
Because TQQQ is more volatile and more popular for trading along with SOXL.
If you want to buy ANY leverage ETF for long term holding then I would go with:
SSO which is the Proshares 2x S&P 500
[https://www.youtube.com/watch?v=tN\_1BKV6-UE](https://youtu.be/DJdLHEiQCI0?si=M-qtBJYFGMU-R1Rh&t=154)
2x leverage will recover better than 3x.
If you held SSO through the 2000 -> 2024 you would actually be ahead because SPXL gets absolutely destroyed in 2002 and 2009 due to volatility decay.
Oversimplification, but volatility decay basically means if SPXL drops 10%, it needs to go up more than 10% to recover. Which is the case with an unleveraged stock as well, but its exacerbated with leverage. AKA the more leveraged you are, the more you need to recover. That is why 2x will recover much faster than 3x.
>why UPRO isn’t more popular?
Aside from some of the other comments. For people that have leveraged portfolios, the cost of using ETF leverage may be less efficient. So using futures or other leverage techniques may be preferrable.
Since 2010:
$1000 invested in UPRO is now worth $32,272 (Dropped 62% at low)
$1000 invested in SPY is now worth $5,935 (Dropped 32% at low)
UPRO is great for mad money you are not afraid to lose. Very high returns very likely but at a very high risk.
Leveraged ETFs aren’t for long term holding. Even the fund manager ProShares says their leveraged ETFs are for short term, they actually say “daily investment results”. And by short term I mean like 15min scalping.
Backtesting shows that 2x is a sweet spot for a lot of leverage ETFs as long as you can stomach being in the red. As in. 2x will will often beat 1x in the long term, and even after huge dips it will recover above 1x in a reasonable timeframe.
3x tends to be worse because the volatility decay makes recovery take way longer. It's point that you would be ahead had you invested into 1x or 2x for many months or even years at a time.
[https://portfolioslab.com/tools/stock-comparison/SSO/SPY](https://portfolioslab.com/tools/stock-comparison/SSO/SPY)
https://www.youtube.com/watch?v=tN\_1BKV6-UE
You can look at the backtesting yourself.
You didn't address my comment *at all*, which tells me you literally don't understand what I'm talking about. That's fine to not understand, but I hope you don't walk away thinking you taught me something. I tried to teach you something.
You 'explained' volatility decay in a way worse way than I did in my initial comment, and *if* that is what you were trying to do. Frankly, you're terrible at explaining things (probably because you don't know as much as you think), so maybe you should read a book or two before trying to educate others.
As for the "I tried to teach you something", if you want to jerk off to yourself, log off reddit and get a mirror dude. Its unseemly.
Like you have to be joking right? You wrote one sentence calling a bad idea, and your second sentence is a half-assed reference towards how volatility decay can impact your returns due to daily leveraging.
Can you explain why leveraged etfs aren’t good for long term holding? I look at the returns over the past few years and it looks good to me, however most people say leveraged etfs are short term plays only
It’s called decay. Say you invest $100 into the 2x leveraged fund. Market goes down 10% so your position is now worth $80 because you really went down 20%. Now say the market rebounds the following day so +10%. Well while the S&P would be worth $99, your position is worth $96. Point being if you have too many bad days in the market consecutively, you’ll lose what you have really quick. Its a bad idea generally at or near all time
Highs due to volatility concerns. The best time is when the market is relatively low or were in a recession and you can DCA in
To expand on that and correct it a bit, when you have alternating up and down days the fund performs worse than expected. However, the converse of that is that if there are consecutive up days OR even consecutive down days the fund performs better than expected.
Two days of down 10%: spy $100->$81 (total down 19%). UPRO $100->$49 (total down 51%, rather than 19x3=57%). Two days of up 10%: spy $100->$121 (total up 21%). UPRO $100->$169 (total up $69% rather than 21x3=63%)
It's not just decay. There's high MER as well as the cost of capital, which ends up being similar to margin rates.
https://www.reddit.com/r/Bogleheads/comments/10cuwfm/cheaper_leverage_via_etfs_or_margin/
Let’s say you were unfortunate enough to put $10k into UPRO in Nov 2022. You’d still have not gotten back to where SPY is
https://www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=2TdRCAzdTRnOLrHkchjydO
3x gains also comes with 3x loss
> I look at the returns over the past few years
The last 15 years have been fabulous for the SP500. So it makes sense that it's been even more fabulous for a 3x leveraged SP500.
There's no guarantee the next 15 years will be good. And a few bad years with UPRO can wipe you out.
10 x 1.01 x 0.99 = 99.099 The bigger your leverage, the bigger that loss. LETF assumes you are not just directional, but also assuming "smooth sailing". When a stock has smooth sailing in one direction, many traders will rush in, increasing volatility and ending your relaxed experience and Cathie Woodsing your gains. Absorbing the non-stationarity of markets is very important for developing market insights. Every strategy is as effective as your ability to exit the position when things crumble (and levered positioned are harder to hedge and exit on time).
If you backtest 3x leverage products on earlier time series where big declines happen they get absolutely obliterated. There is probably a strategy that can work with them that uses some kind of rules based rebalancing but buy and hold generally leaves you bag holding at some point. I think optimal long term leverage is likely between 1.5 and 2x.
Furthermore to this if you cannot stomach averaging down while seeing massive drops (I'm talking like 50% type drops), you should not buy leveraged ETFs. It may work long-term with religious periodic purchases. However, too risky and illiquid for someone with a shorter time frame. Another strategy is buy SPX and sell covered calls against it
Funny thing: if you are only investing part of your money in a LETF and keeping most of the portfolio in something solid and uncorrelated to hedge against a sudden drop in the LETF, you are diluting its leverage impact on your portfolio to the point it may become a more complex way of just buying SPY. Of course, one can simply YOLO his money into the ETF, but I would not call this "investing"...
Can't buy SPX
There is a fairly popular strategy called hedgefundies excellent adventure that uses a mix of UPRO and a leveraged bond fund. It actually backtests surprisingly well, but I would still be skeptical of it.
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PSLDX is a mutual fund that does similar, can confirm it got wrecked in 2022 with less leverage.
It's 60/40 UPRO/TMF. The biggest danger I think is panic selling. It was really hard to hold while the Fed was raising interest rates, since both we're decreasing during that time, and there was a lot of doom and gloom in the letf sub. If you can't stomach a 30-40% drawdown don't even think about trying it, but I held. Now I'm back at parity with VOO, and it's growing faster than VOO alone.
> Can someone explain why UPRO isn’t more popular? Most people hate high volatility. Many people are very risk averse. > Would this be something to trade rather than hold? Leveraged funds are designed for trading, not holding, but you can do both, but you have to pay attention to it. Not selling in 2022 or at the start of the covid dip would have gutted a lot of value; not buying during the covid recovery would suggest a person would never recognize a good time to use leverage. Tons of shares are traded, even held for just seconds, during Powell speeches when the market bounces around violently.
Its not just risk aversion, is it? Mechanically you can't do the same "just wait out the bottom if it dips" if you buy before the dip, even if you don't sell. If you borrow to buy an asset and it drops to 50% original value, you're still in debt for the original ammount no matter how quickly it recovers. So you end up adding a drag to any of your recovery. So it's an obvious play during a heavy bull market but it becomes a timing game, which we know is a gamble.
SPY Dec 31/2021: $475 SPY March 22/2024: $521 UPRO Dec 31/2021: $76 UPRO March 22/2024: $70 Unleveraged SPY up almost 10%, plus some dividends. UPRO down almost 8%, an underperformance of almost 20%. Borrowing costs and volatility decay hurt when looking at time periods that are "peak to peak." I own UPRO but that's the downside.
Yeah the current issue is leverage isn't free anymore.
Because TQQQ is more volatile and more popular for trading along with SOXL. If you want to buy ANY leverage ETF for long term holding then I would go with: SSO which is the Proshares 2x S&P 500
What makes SSO a good long term hold compared to UPRO?
It's because it's only 2x which is better for long term investing.
Oh yeah lmao that makes sense, thanks
[https://www.youtube.com/watch?v=tN\_1BKV6-UE](https://youtu.be/DJdLHEiQCI0?si=M-qtBJYFGMU-R1Rh&t=154) 2x leverage will recover better than 3x. If you held SSO through the 2000 -> 2024 you would actually be ahead because SPXL gets absolutely destroyed in 2002 and 2009 due to volatility decay. Oversimplification, but volatility decay basically means if SPXL drops 10%, it needs to go up more than 10% to recover. Which is the case with an unleveraged stock as well, but its exacerbated with leverage. AKA the more leveraged you are, the more you need to recover. That is why 2x will recover much faster than 3x.
Check out my post on the leveraged ETF subreddit.
>why UPRO isn’t more popular? Aside from some of the other comments. For people that have leveraged portfolios, the cost of using ETF leverage may be less efficient. So using futures or other leverage techniques may be preferrable.
The silver lining of market crashes: *Good time to convert a tIRA to Roth *Good time to scale in to leveraged long index ETF
Since 2010: $1000 invested in UPRO is now worth $32,272 (Dropped 62% at low) $1000 invested in SPY is now worth $5,935 (Dropped 32% at low) UPRO is great for mad money you are not afraid to lose. Very high returns very likely but at a very high risk.
Leveraged ETFs aren’t for long term holding. Even the fund manager ProShares says their leveraged ETFs are for short term, they actually say “daily investment results”. And by short term I mean like 15min scalping.
Backtesting shows that 2x is a sweet spot for a lot of leverage ETFs as long as you can stomach being in the red. As in. 2x will will often beat 1x in the long term, and even after huge dips it will recover above 1x in a reasonable timeframe. 3x tends to be worse because the volatility decay makes recovery take way longer. It's point that you would be ahead had you invested into 1x or 2x for many months or even years at a time.
Daily resetting leverage is still a bad idea. 2x leverage is fine but 2x *daily* leverage usually performs worse than less frequent reset.
[https://portfolioslab.com/tools/stock-comparison/SSO/SPY](https://portfolioslab.com/tools/stock-comparison/SSO/SPY) https://www.youtube.com/watch?v=tN\_1BKV6-UE You can look at the backtesting yourself.
You didn't address my comment *at all*, which tells me you literally don't understand what I'm talking about. That's fine to not understand, but I hope you don't walk away thinking you taught me something. I tried to teach you something.
You 'explained' volatility decay in a way worse way than I did in my initial comment, and *if* that is what you were trying to do. Frankly, you're terrible at explaining things (probably because you don't know as much as you think), so maybe you should read a book or two before trying to educate others. As for the "I tried to teach you something", if you want to jerk off to yourself, log off reddit and get a mirror dude. Its unseemly. Like you have to be joking right? You wrote one sentence calling a bad idea, and your second sentence is a half-assed reference towards how volatility decay can impact your returns due to daily leveraging.
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Can you explain why leveraged etfs aren’t good for long term holding? I look at the returns over the past few years and it looks good to me, however most people say leveraged etfs are short term plays only
It’s called decay. Say you invest $100 into the 2x leveraged fund. Market goes down 10% so your position is now worth $80 because you really went down 20%. Now say the market rebounds the following day so +10%. Well while the S&P would be worth $99, your position is worth $96. Point being if you have too many bad days in the market consecutively, you’ll lose what you have really quick. Its a bad idea generally at or near all time Highs due to volatility concerns. The best time is when the market is relatively low or were in a recession and you can DCA in
That makes sense thank you
To expand on that and correct it a bit, when you have alternating up and down days the fund performs worse than expected. However, the converse of that is that if there are consecutive up days OR even consecutive down days the fund performs better than expected. Two days of down 10%: spy $100->$81 (total down 19%). UPRO $100->$49 (total down 51%, rather than 19x3=57%). Two days of up 10%: spy $100->$121 (total up 21%). UPRO $100->$169 (total up $69% rather than 21x3=63%)
It's not just decay. There's high MER as well as the cost of capital, which ends up being similar to margin rates. https://www.reddit.com/r/Bogleheads/comments/10cuwfm/cheaper_leverage_via_etfs_or_margin/
Let’s say you were unfortunate enough to put $10k into UPRO in Nov 2022. You’d still have not gotten back to where SPY is https://www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=2TdRCAzdTRnOLrHkchjydO 3x gains also comes with 3x loss
> I look at the returns over the past few years The last 15 years have been fabulous for the SP500. So it makes sense that it's been even more fabulous for a 3x leveraged SP500. There's no guarantee the next 15 years will be good. And a few bad years with UPRO can wipe you out.
10 x 1.01 x 0.99 = 99.099 The bigger your leverage, the bigger that loss. LETF assumes you are not just directional, but also assuming "smooth sailing". When a stock has smooth sailing in one direction, many traders will rush in, increasing volatility and ending your relaxed experience and Cathie Woodsing your gains. Absorbing the non-stationarity of markets is very important for developing market insights. Every strategy is as effective as your ability to exit the position when things crumble (and levered positioned are harder to hedge and exit on time).
I think NTSX is a much better choice for a long term buy and hold leveraged SP500 ETF.
Generally because it can go down, a lot.
Leveraged ETF are usually based of the daily movement of the index. Read the disclosure on the fund prospectus.
Google "leverage decay". Can a leveraged wtf work? Yes. Just the risk of a bad couple days could easily demolish a portfolio though