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Anybody else playing the lottery with 3x leveraged ETFs?
Old 05-17-2022, 12:41 AM   #1
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Anybody else playing the lottery with 3x leveraged ETFs?

The fact that there are tons of 3x leveraged ETFs available for almost all sectors and indexes is pretty amazing to me.

These are generally thought of as trading tools, but I like to look at them as lottery tickets.

When these ETFs get discussed a lot of people focus on the "decay" built into them. IMHO, I don't care.

Below I have data showing that if you have put $5,000 each into the 3x leveraged NASDAQ 100 and S&P 500, starting in 2011, you'd have $237,688 and $85,347 in just 11 years.

Since both the NASDAQ and S&P 500 are down a good amount, now seems like a good time to buy these two lottery tickets. I'm just going to buy them and hold them in my taxable account and see what happens a decade from now. I have almost $1M in my taxable account. So, $10k is a gamble of roughly 1%.

https://bit.ly/3sEFrgy

FYI, I have started using https://www.sofi.com for my banking and credit cards, as they give better cash back rewards than other banks. The other interesting feature they have is that if you open a brokerage account with them you can have your cash back deposited there and they let you deposit the money directly into these 3x leveraged ETFs...

I think I will make a nice return off of my cash back this way, over the long term.
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Old 05-17-2022, 02:09 AM   #2
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In a rising interest rate environment you're likely going to be very disappointed.
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Old 05-17-2022, 02:25 AM   #3
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If you feel this is a moonshot, why put in taxable accounts?
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Old 05-17-2022, 06:39 AM   #4
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If I want to play the lottery, I'll buy a ticket. I don't so I won't. I've never even got into closed end funds 'cause I don't like leverage in investments.

Heh, heh, at least with lottery tickets, you're chances don't change just because the equity and bond markets are in a tizzy. You KNOW you're not going to lose, so why play though YMMV.
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Old 05-17-2022, 09:33 AM   #5
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If I wanted to play this game right now, I'd buy an INVERSE leveraged ETF.



https://etfdb.com/themes/leveraged-inverse-etfs/
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Old 05-17-2022, 10:06 AM   #6
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@ESRwannabe, it seems you understand that backtesting is not predictive and that you are considering having some fun gambling with a small part of your portfolio. If you're looking for approval, you have mine though I would never consider such a thing for our portfolio.

(I tell the students in my Adult-Ed investing class: "Investing is boring. If you're not bored, you're doing it wrong.") But I had a multimillionaire business partner who enjoyed taking $250 to the casino for an evening of entertainment, so I think I can appreciate your attitude.
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Old 05-17-2022, 10:38 AM   #7
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Quote:
Originally Posted by ESRwannabe View Post
The fact that there are tons of 3x leveraged ETFs available for almost all sectors and indexes is pretty amazing to me.

These are generally thought of as trading tools, but I like to look at them as lottery tickets.

When these ETFs get discussed a lot of people focus on the "decay" built into them. IMHO, I don't care.

Below I have data showing that if you have put $5,000 each into the 3x leveraged NASDAQ 100 and S&P 500, starting in 2011, you'd have $237,688 and $85,347 in just 11 years.

Since both the NASDAQ and S&P 500 are down a good amount, now seems like a good time to buy these two lottery tickets. I'm just going to buy them and hold them in my taxable account and see what happens a decade from now. I have almost $1M in my taxable account. So, $10k is a gamble of roughly 1%.

https://bit.ly/3sEFrgy

....
I think I will make a nice return off of my cash back this way, over the long term.
Can you explain, what is the decay built into them ?

Is your plan to buy and hold them for a few years ?
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Old 05-17-2022, 10:57 AM   #8
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I think "fun gambling money" is a great way to think of these. Although putting in a long term bet for a gamble sounds like minimal fun to me, kinda like pulling a penny slot every hour for ten years. One the other hand, one $10 pull? Wahoo!
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Old 05-17-2022, 11:13 AM   #9
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Can you explain, what is the decay built into them ?
I would imagine that ESR was referring to the "volatility drag" or "volatility decay" that is exacerbated in leveraged funds: https://www.morningstar.com/articles...olatility-drag
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Old 05-17-2022, 02:34 PM   #10
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Quote:
Originally Posted by Out-to-Lunch View Post
I would imagine that ESR was referring to the "volatility drag" or "volatility decay" that is exacerbated in leveraged funds: https://www.morningstar.com/articles...olatility-drag
Another example of my investing philosophy: If I can't explain it in 50 words or less, I don't invest in it. YMMV
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Old 05-17-2022, 03:16 PM   #11
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Lost a boatload on these. I don't mess with them anymore.
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