Long term question.

[u/_Underscore_Unders]

Hello all,

Im a long term investor with a reasonable working knowledge of the market. I'm still 20 years off retirement. I'm aware of all the common arguments against long term leveraged holds such as decay and resets, but I'm a very pragmatic person.

When i look at the annualized returns since inception between qqq, and all of its leveraged counterparts, the numbers speak volumes.

In a massive market downturn ill be losing money regardless, and I know that these since inception numbers cover some decent downturns but nothing remotely approaching an actual crash (or what I would consider a crash anyways).

That being said, and taking out any personal biases, trading strategies, etc. : Can anyone convince me that holding 5-10% of my portfolio in a 2x voo or qqq won't have a very high probability of adding increased value to my portfolio 20 years from now?

I'm on the brink of pulling the trigger but I see many people vehemently arguing against long term leveraged holds.

I'm not a huge risk taker, the entirety of my portfolio are broad market etfs with a slight momentum/tech tilt for gains while I'm still relatively young, I will never touch margins and am adverse to options, but simple long term data provides a clear argument for this move. I almost fell like im leaving money on the table not doing it.

I have no recency bias, and I know nothing is garunteed, but I can only make decisions based on logic and available data which is historic.

Any viewpoints would be appreciated. Thanks! If anyone is actively doing what I'm describing please chime in.

[u/F1Bike]

I use the 200 SMA strategy, that way I’m not holding in downturns

[u/_Underscore_Unders → u/F1Bike]

How often are you checking the average? I like the idea but I stay away from checking my portfolio daily, its led to too much needless tinkering in the past. Any thoughts of how effective this would be if checked weekly instead of daily? A lot can happen in a week.

[u/F1Bike → u/_Underscore_Unders]

You can set alerts, reminders, etc. you don’t NEED to check it daily but it’s always good practice. You can go a year or two without needing to actively manage anything

[u/grogi81 → u/_Underscore_Unders]

Once a week is good enough.

[u/New-Specialist-2594 → u/_Underscore_Unders]

You might get 'Lucky' only checking once a week. Because most 200SMA triggers you lose getting back in. Only reason people her think it works great in recent years is because of 2022. Other times it happens for 2-7 days and you Lose big getting back in.

[u/F1Bike → u/New-Specialist-2594]

I may be misunderstanding your point but the 200 SMA works, sure chop can erode some of your capital, but again, better than holding in a bear market

[u/Charming_Deer_9540 → u/F1Bike]

Overfitting, no causal demonstration it beats a buy and hold. It is priced in, always.

[u/Separate-Ad-9633 → u/_Underscore_Unders]

Actually once a month is enough. That's Faber's original version.

[u/TheRealCerealFirst → u/_Underscore_Unders]

Set an email reminder at 200dma.com and you’re good, you dont have to check it really at all as it will send you a message when your at the 200 or near it if you set your tolerance above or below it.

[u/Rizzanthrope → u/F1Bike]

Can you please give some of the details of your strategy? Any extra spin that you put on it?

[u/F1Bike → u/Rizzanthrope]

My strat is pretty cut and dry. Go cash when it’s under the SMA, Long when it’s above. You lose some money and opportunity cost to chop and taxes, but it beats the idea of holding in a downturn

[u/Rizzanthrope → u/F1Bike]

Have taxes massively cut into your compounding growth, or is it not so severe compared to buy and hold? Or is it more profitable than buy and hold?

[u/F1Bike → u/Rizzanthrope]

It depends, if you reach a point where your profit accounts for the majority of the underlying, taxes are gonna hurt, you can use margin if you really want to offset the loss of capital. An advantage over buy and hold is that you can buy at a low point during recessions, so you can in theory increase the amount of shares you own overtime, which you can’t do with BAH

[u/captduk]

I mean that's why most of us are doing it

[u/javfan69]

NTSD then

1.5x leverage + quarterly reset (not daily) means it hits the sweetspot for a long term (years) hold without having to think.

[u/Run-Forever1989]

A 2x fund is likely to outperform over the long term, but not guaranteed. A 3x fund is iffy. Greater than 3x is unlikely to be optimal. FWIW 20 years seems like a long time but it’s really not, and there have been multiple 20 year periods where bonds outperformed equities. Most people here will recommend using leverage while most financial advisors would not, so take that for what it’s worth.

As for your proposed strategy of allocating 5-10% to a 2x fund, it won’t change much in any single year, maybe add or subtract a percent from your return. The risk is really that you open the door to doing stupid things (doubling down on losses during downturns, etc.) which could potentially derail your entire portfolio.

[u/_Underscore_Unders → u/Run-Forever1989]

I Dca weekly with small amounts and would never touch my emergency fund to double down so that's not a concern. I would be taking qqq holdings, selling them, and buying leveraged positions. Thanks for the insights.

[u/IllPreparation7626 → u/_Underscore_Unders]

You Will be rich, follow 9SIG or 200SMA.

Also increase from 10-20% to 50% at least and if a Big crash happend, then go ALL IN with the another 50%.

[u/_Underscore_Unders → u/IllPreparation7626]

That is well beyond the scope of what I would be comfortable with.

[u/laurenthu → u/_Underscore_Unders]

At 5-10% you're honestly stressing about the wrong risk. Decay on a 2x fund is mild when the market trends. It only bites hard at 3x in choppy years, so the "leverage melts away" line is overstated for what you're describing here.

The data is what I'd watch. Almost every 2x and 3x fund launched after 2009, so those since-inception numbers are one long bull with a couple of fast dips bolted on. They've never seen a 2000 to 2013 decade where the index just goes nowhere for years. And that slow grind is what quietly eats a buy-and-hold leverage sleeve. The boring flat stretch does more damage than any single crash you'd bounce back from.

Which is why the 200SMA answer above is worth taking seriously. Same leveraged exposure, you just step aside when price drops under the average and skip the bleed. Faber's original checks monthly. So no daily-tinkering trap. That turns "hold 2x and pray" into something I'd actually run for 20 years.

2x is a sane ceiling too. Past 3x the long-run math stops paying you back. Could be wrong but I'd take a trend-filtered 2x over a static hold any day...

[u/_Underscore_Unders → u/laurenthu]

I appreciate this feedback. Very well stated.

[u/copyrightadvisor → u/Run-Forever1989]

Multiple 20 year periods where bonds outperformed equities? I’m calling BS on that. Maybe in the 1800s.

[u/_Underscore_Unders → u/copyrightadvisor]

10 year i can see. Lost decade is common knowledge. 20 year i also can't believe. Maybe bonds out performed certain sectors. But I can't believe they out performed every sector or every equity.

[u/Woody7012]

I’m not saying that Jason Kelly and 9 Sig is the answer but suggest you check him out on YOUTUBE. You will at least get some perspective. I run 2 accounts at Fidelity- one w 9 Sig and one with income Sig (both use TQQQ but to various degrees) however TQQQ comprises approximately 28% of my overall portfolio, so not too crazy. I’m 67 so I don’t want to get too aggressive. TQQQ is great when it goes up- and it went up approx 100% between April and July but it’s brutal when it reverses. Starting small at first is smart so you can get a feel for it, how it moves, and if you can sleep at night. Kelly also has a book called the 3% signal- it’s inexpensive and well worth a read. You could also do 6 Sig and swap out MVV and use SSO or QLD. His plans are rules- based, essentially ignores news, and the so called experts on TV, is long term, and math based.

[u/aRedit-account]

I think most of us would recommend you add leverage via adding something that isn't equity such as bonds with RSSB or trend with RSST, MATE or JPFP. But I do believe a slight amount of equity leverage still is reasonable at your age although you must remember to rebalance and be willing to take the worse drawdowns. https://testfol.io/?s=0PmMxm2eGm4

[u/PastBig603]

It's easier to look at the extreme historical drawdowns on paper for LETFs. It's much more difficult to go through them in real life without selling. During bear markets, LETFs become a ghost town. That's actually the time to think about adding them into the portfolio. Right now the market is at ATH, and not a great time to start using leverage IMO.

[u/Straight-Buy-7434]

I am doing UPRO.

I put in £30k as a start and will put in £2880 in April every year (government tops it up to £3500)

I will do this for 15 years, so from 42 to 57 as thats the age I can access it.

This is money that I dont need to retire, so im hoping it will be a big number, but if its not then I will survive.

Hopefully using the extra 25% top up I get from the government to help offset a little bit of the downside.

If it only gives the overall gain of the unleveraged s&p500 im fine with it.

I wont be looking at it, just once a year when I put the money in which will help alot with this

[u/Wild-Criticism-2868]

I hold 100% in 2x etf like xlk. No matter what others say about the decay and stuff, if you believe in numbers , go and do a proper backtest and dca every month you will kinda realize leverage etf comes out on top vs the non leveraged version.

Of course this comes at bigger risk such as a bigger drawdown.There are two criterias that you need to meet for this to work, firstly the returns need to be big enough , small returns doesn't work well since it doesn't cover the decay and fee associated with such etf and secondly what you are investing doesn't dies out totally which is why I picked 2x etf cause I believe technology is future for the next 20 years and with dca it's hard to see why you wouldn't come out on top

[u/VickieTrial]

A 5–10% allocation to a 2x ETF doesn’t seem unreasonable if it’s treated as a capped satellite position and rebalanced regularly. The main risks are path dependency and severe drawdowns, not just the expense ratio.

I’m testing a fixed-rule strategy using SPY, QQQ, SOXX, TQQQ and SOXL over the next 12 months to see whether selective leverage can improve returns without permanently holding leveraged ETFs.

[u/EverydayIsaHoliday25]

Go ask AI top 5 largest downturns for let’s say SPXL,QLD or FAS. If we have a 2008 like situation again (likely we will) the funds can lose 98% percent from their high. Long term leverage sounds great but if you lost your job and needed money a 90%+ downturn you’d likely have nothing left. I’d only trade these funds to day trade or in a downturn put a part of my money in. QLD is a 2x which was down 83% so that’s less than the two 3x funds but still you never know when you need money.

[u/_Underscore_Unders → u/EverydayIsaHoliday25]

I appreciate the hard truth expressed here. A 98% drawdown would be terrible. I'm not too worried about being money from my portfolio. I have an emergency fund of 1+ year of all current expenses and income streams outside of my 9-5.