저자: Dave · 외국인
요약 보기
3배 레버리지 ETF(TQQQ 등)는 최근 10년 누적수익이 높았으나, 매일 리밸런싱으로 인한 변동성 손실(volatility decay)과 높은 보수(약 1%)로 장기 보유에는 부적합하다고 설명. 레버리지 자체는 문제없지만 고레버리지일수록 위험이 커진다고 강조. 발표자는 TQQQ를 보유하지 않으며, 투자한다면 포트폴리오의 작은 비중(수 %)으로 대체투자 개념으로만 다루겠다는 입장. 하락장에서의 위험과 적립식 투자 리스크도 경고. 중간에 직접지수화 투자 서비스 광고 포함.
다듬은 글
Hi guys, welcome back to the channel. My name is Dave. The stock market in the short term tends to move in rather mysterious ways. I don't know where it's going, but in the long term, I have confidence I can invest dollars today in good solid products with the expectation of having more money in the future.
And this line of thinking leads a lot of people to think about leverage and how they can use leverage to make more money. So today I want to talk about leveraged ETFs. These are interesting products. They have some risks, but if you look at the last 10 years, they've done quite well. So, should we consider these for our portfolio?
Let's talk. If that is what you're looking for, please stick around. So, first of all, leverage in my mind is not a dirty word. I'm happy to use leverage when I buy a home. Happy to use leverage when I trade options. In this case, we're talking about these 3x leveraged ETFs that have become quite popular.
So, I'm talking about TQQQ. That's a really popular one that I get asked about all the time. UPRO, UPRO, or SPXL. Those are three that I've been asked about in the past. These are all 3x leveraged ETFs, right? They're supposed to give you three times the performance of the underlying. So, with TQQQ, we're talking about the NASDAQ 100, and we're trying to triple the performance of that ETF utilizing a product like this.
So, let's focus on that one today. TQQQ. And what is actually in TQQQ? How do they get three times leverage? Well, they do it by investing in the underlying equities of QQQ along with using things like derivatives, swap agreements, futures contracts, treasuries, and even money market accounts. All of these are used to set the daily leverage to three times that of the underlying.
And each day, the fund needs to rebalance its holdings to maintain that targeted 3x leverage ratio. Now, this ETF, it has performed exceptionally well over the last 10 years. It has a total return of around 2,300%. That's outstanding, right? Compared to QQQ, which it's right around 500%. Still really good.
You'd be happy if you own that as well. It's just it's hard to argue with those types of results when we see it over a fairly long period of time. This is a 10-year period. Yet, most people agree that leverage ETFs like TQQQ are not necessarily a good option to simply buy and hold. So with such exceptional performance over the past 10 years, why are they not uh good uh just to buy and hold?
Well, one reason is that they have a fairly high expense ratio. In this case, it's82% for TQQQ. Add in some additional fees, it's right around 1% for this product. And that's probably standard across a lot of these. So think 1%. Now, a lot of people are going to say that's minuscule compared to the total return of the last 10 years.
And I would say yes, you're absolutely right. But it is a factor and something to consider when you're looking at this and you're comparing it to the underlying which is going to be maybe onetenth of that or even less. But the primary reason is what is known as volatility decay or value erosion. So what is this decay about?
Well, it essentially means a few bad days can ruin everything. But let's take a closer look. So these products reset their leverage on a daily basis. So each day they have to rebalance the portfolio so that it can mimic the return of in this case the NASDAQ 100. So if the NASDAQ 100 QQQ is up 1% this is reset daily so that it can experience a 3% gain.
If there's a decline of 1% it's set to experience a 3% decline. So these products are not intended to give you the annual return of QQQ. If QQQ's up 20% this year, this isn't going to give you a 60% return. It's going to do this on a daily basis. So, it can give you dramatically different results from what the index returns over the course of a year.
Now, here's an example of value erosion and how it could play out in something like TQQQ. So, rather radical example, I get it, but it illustrates it pretty well. So, let's suppose we invested $100 into QQQ and $100 into TQQQ. And on day one with QQQ, our investment declined 10%. We would go from $100 down to 90, right?
No problem there. The next day, let's say it climbed 10%. What would we have? $100. Nope. We would have $99, right? 10% climb from 90 up to 99. We would actually need 10 divided by 90= 11.11% to get all the way back to our original $100. In this pattern, we could repeat this all year long and we would maintain our $100.
That's what you see over here. So that is the QQQ scenario. However, the same pattern with TQQQ would result in your $100 investment uh dropping 30% down to $70 followed by gaining 11.11% time 3 for the daily reset up 33.33%. And at first that sounds okay. But if we take our $70 investment after day one and multiply that times 33.33%, we see it only gains back $23.33 of value versus the $30 we lost on day one.
So now we're back to a new value of $93.33. You would be seeing value erosion on each and every up and down cycle. And this could be a big problem in volatile markets or markets that are just moving sideways. And while this is an unlikely scenario, it's an important one to understand. It's important to understand the mechanics of how this can occur with something like this with the daily reset where you can end up with $100 in QQQ still at the end of the cycle, but you're at a 30% loss with TQQQ.
So just understand that there is this risk that is out there in a sideways or choppy market where you could see declines in the underlying if uh you hold something like TQQQ. Now as I mentioned I have no problem using leverage. I do use leverage. I just want to understand the risks that are coming along with that leverage.
So the higher the leverage, the closer you get to uh touching the sun and eventually you will get burned, right? So recently, several companies have come out. They filed for 5x leveraged ETFs. And that's one of the reasons I decided to do this video. So those 5x leveraged funds must be better than the 3x leverage, right?
We're going to make more money, right? You just can't keep going this direction. So just to take an exaggerated approach, suppose they they approved the 33x leveraged ETF and on day one the underlying declined 3%. Does that mean 99% of the 33x leveraged fund is gone? Yes, that is exactly what it means.
And the next day, if the underlying climbs back 3%, guess what? You pretty much you still have nothing because you really have nothing to compound in the first place. So, the higher the leverage, the higher the risk. Don't fly too close to the sun. You will get burned. I guess one other way to think about it, if uh QQQ dropped 33% because somebody bombed somebody, yes, you would pretty much have zero with little chance of recovery no matter what your position was with TQQQ.
So that is the uh the biggest risk with funds like this. So now that we know the risk, what about the reward? What about the fact that this is up 2,300% over the last 10 years? Can we utilize this product somehow in our portfolio? Let's talk about it. But first, a word from today's sponsor, which is public.com about direct indexing.
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So head over to public.com for more information on direct indexing. And if you want to find out more about public.com or direct indexing, please use this link. It will be down below. So now let's think out loud about how we might utilize something like this a 3x leveraged fund in our portfolio. I guess first of all, I do not own any of these and I don't have any plans to buy any of these.
I can get uh exposure using call options. There's other ways to get leverage in the stock market outside of these and it doesn't cost me as much to do it that way. So, that's one of the reasons that I don't really buy these. Uh they have outstanding performance over the last 10 years, but for the reasons that I've shown you, there is that risk.
And for me, when I invest, I'm not trying to become rich from investing as much as I'm trying to invest to continue to grow my wealth. Does that make sense? So, my risk profile is probably going to be different than somebody that's looking to buy TQQQ and put it in their portfolio to become rich, right?
So, I've got enough. I'm okay. Now, with that said, if I was going to make an investment in here, I would treat it as an alternative and it would be a small portion within my portfolio. So maybe you would use a few percentage to look for outsized returns with something like this, especially if you're a buy and hold person that wants to own this.
I wouldn't let it dominate my portfolio. Just my personal uh view. Now, there are people that use these for short-term tactical trading if you want to try to time the market or you see these significant pullbacks and you want to play with this a little bit, but again, it would be a small portion of my portfolio.
There's also inverse leveraged ETFs. You might use that for hedging if you want to hedge against a potential downturn like a lot of people are spooked right now. But yeah, if I was going to use this product, I would treat it as an alternative and I would limit my exposure. Now, it has worked for many years, but that doesn't mean it will continue.
You know, this week QQQ was down around 3 and a half to 4%. It was a pretty big decline for the Q's relative to where we've been recently. And TQQQ was down, I think, around 11%. I'll try to put that up here now. But uh there is that moment, right? If you invest in the wrong period of time, this could really hurt you in your portfolio performance.
And I've also been asked about dollar cost averaging into a product like this. Again, over the last 10 years, that that would have worked out pretty darn well, but that could change Monday, right? something really detrimental could happen to the market. If the NASDAQ declines 15% and you're down suddenly 45% from where you were at, you're going to feel sadness, eternal sadness.
Those losses are a lot worse than the gains that you have. So, I would just I would be I would protect myself a little bit and I wouldn't let myself get overexposed to something like this. Again, it's an alternative in my mind and there is inordinate amount of risk that comes along with it if there is a potential downturn.
So, that's my view of these products. Let me know what you think about these down below. Like and subscribe if you like this type of content. If you're looking for more, check out one of these videos next. And uh we'll see you next time. Have a great weekend. Enjoy yourself. We'll see you soon.
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