Leverage for the Long Run and Lifestyle Investing promote the use of leverage for investors with a long time horizon. Everybody points to the dot com crash to dismiss TQQQ but that ignores the impact of a DCA strategy and always assumes lump sum investment with only buy and hold and no risk management like annual rebalancing. Even QLD and SSO are 2x ETFs that can safely make up 20% of a diversified portfolio and get market beating returns for an investor with a long enough time horizon. You should go do some backtesting and get back to us, otherwise you are just peddling Boglehead mantras posing as wisdom.
You raise a classic backtest argument. If you run a DCA strategy into these leverage tech funds post dotcom, these overperformed. There is no doubt that they did very well.
That's simply because tech has overperformed in that period. If tech underperforms or goes sideways, the daily resetting and concentration will lead to high volatility with worse performance. It's a bet on a particular industry with the added risk of leverage.
Also, while the DCA strategy works on paper, very few investors can actually stomach an 80+% drawdowns and keep buying. If someone told me they were in a leveraged fund during the Great Financial Crisis, lost 85% and still kept buying that's someone with a very tolerance that can do these kinds of strategies. In practice, we know that it's quite rare.
I agree with you that it's fine for a small portion of your portfolio with these kinds of speculative or risky bets, like I mentioned above.
PS. SSO is a little different, since it's less of a bet on an industry and more on big-cap broadly. For someone who has a proven high risk tolerance a longer time horizon, I agree you could go a little higher in your portfolio on that one.
Leverage for the Long Run and Lifestyle Investing promote the use of leverage for investors with a long time horizon. Everybody points to the dot com crash to dismiss TQQQ but that ignores the impact of a DCA strategy and always assumes lump sum investment with only buy and hold and no risk management like annual rebalancing. Even QLD and SSO are 2x ETFs that can safely make up 20% of a diversified portfolio and get market beating returns for an investor with a long enough time horizon. You should go do some backtesting and get back to us, otherwise you are just peddling Boglehead mantras posing as wisdom.
You raise a classic backtest argument. If you run a DCA strategy into these leverage tech funds post dotcom, these overperformed. There is no doubt that they did very well.
That's simply because tech has overperformed in that period. If tech underperforms or goes sideways, the daily resetting and concentration will lead to high volatility with worse performance. It's a bet on a particular industry with the added risk of leverage.
Also, while the DCA strategy works on paper, very few investors can actually stomach an 80+% drawdowns and keep buying. If someone told me they were in a leveraged fund during the Great Financial Crisis, lost 85% and still kept buying that's someone with a very tolerance that can do these kinds of strategies. In practice, we know that it's quite rare.
I agree with you that it's fine for a small portion of your portfolio with these kinds of speculative or risky bets, like I mentioned above.
PS. SSO is a little different, since it's less of a bet on an industry and more on big-cap broadly. For someone who has a proven high risk tolerance a longer time horizon, I agree you could go a little higher in your portfolio on that one.