what’s a leveraged etf?

here’s one: TQQQ 0.00 (proshares ultrapro qqq)

• it’s one of the largest leveraged etf's

• the objective of this ticker is simple: tripling the daily returns of QQQ 0.00, the etf that follows the returns of the nasdaq index

• "leverage", "3x", these are buzzwords we should be care about

  • sure, if we think the nasdaq index will go up today, we may get larger returns by trading TQQQ 0.00 rather than QQQ 0.00

  • but the same logic applies in the opposite direction as well

    • if you somehow turn out to be wrong and the index drops, by holding TQQQ 0.00, you will lose (at least) 3x as much as QQQ 0.00 would

there’s also inverse etf’s

such as: SDOW 0.00 (proshares ultrapro short dow30)

• “inverse” because it moves in the opposite direction of the dow jones index

• this one’s actually leveraged as well, because it provides 3x exposure, meaning if the dow inches up 1% today, SDOW 0.00 will plunge (at least) 3%

these are very risky

• no one knows if the market’s going up, down, or sideways, so it takes a huge risk appetite (and oftentimes irrationality) for an individual investor to take on lots of inverse and/or leveraged etf’s

• imo: these are only “wisely” used if one trades these as a tool for hedging short-term risk

nonetheless, money’s pouring into inverse and leveraged etf’s

• per morningstar direct, ~$25b has flowed into leveraged and inverse etf's this year, which is already above 2008's record-high $17b figure

• this year, a whopping 6.1% of the total net amount added to etf's are inverse and leveraged funds

  • the number was only 1% in 2021 and 2.9% in 2020

the more you look into inverse/leveraged etf’s, the more “loss porn” you’ll encounter… hope everyone stays safe and sound with their decisions!

💡 something im thinking about

that's all, folks 🐒

buy me a coffee :)

as always, i’m no financial advisor! (i’m no substitute for professional financial services)