Debunking the “Leveraged ETFs Are Not a Long-Term hold” myth. Big backtest

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I recommend looking up HedgeFundie’s Excellent Adventure on Bogleheads. There is significantly more in-depth analysis than this, including attempts to model how the 3x daily returns are achieved (swaps that are priced based on LIBOR). Your point is still correct, however: volatility drag is a boogeyman.


Sooo…. you’re telling me i should in fact take out margin to buy OTM UVXY calls?


Curious how this would play out via a ‘lost decade’ Japan-like scenario in the markets and does this factor in expenses as I thought leveraged ETFs had somewhat higher expense ratios which was another reason that made them more risk-prone for longer term holding.


It really depends on what you want, the S&P is normally ment as a safe fairly non volatile way to build wealth in retirement, I wouldn’t recomed somone buy leveraged ETFs if they are looking to get safe returns to retirement, but if your looking for better returns and can deal with the extra risk & volitility leveraged ETFs can be great investments, it just depends on what you want, they don’t really replace each other and serve very different purposes.


Some contrarian thoughts are that if you DCA into ULPIX since the inception of the fund (1998) you only really start beating the sp500 in 2017, a full 19 years later. Also if you look at 2x funds for other countries/regions (EET – emerging markets, XPP – china, EFO – EAFE index, UPV – Europe, and EZJ – Japan) they either don’t beat or barely beat the underlying indices. Probably because of more volatility in those markets compared to the US. It seems like you need 7-8% returns before leverage starts taking off and relatively low volatility. Will the US continue to have relatively low volatility and prosperity? Hard to say but that’s what you’re banking on with leverage.