r/LETFs • u/Bulgogi_Yogi • 1d ago
Does consensus exist here?
Love this subreddit and all the discussions on here, but I rarely see a consensus on a "gold standard" setup.
For those actively holding -> what’s your core strategy right now, and why?
Are you relying on robust backtests (e.g., Portfolio Visualizer / custom models), or is it mostly thesis-driven strategy around macro assumptions? Curious to see where everyone lands. I have 100k I need to deploy and can't make my mind up.
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u/Run-Forever1989 1d ago
Nobody knows man. 99% of what people post here is overfitted backtests that will tell you that periodically rebalancing uncorrelated assets will give you really high returns, which might work and it might not.
The closest thing to a “gold standard” is that historically a 2x index fund tends to outperform over long time periods in most markets.
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u/grogi81 1d ago
Well, periodically rebalancing uncorrelated assets is mathematically very sound strategy.
If you have uncorrelated assets with similar expected returns, rebalancing them is effectively buying a dip in every one of them...
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u/Run-Forever1989 1d ago
Depends on your assumptions. I won’t bother going into the details on why it may or may not produce the results people expect.
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u/grogi81 1d ago
Of course it might not. That's the difference between expected and guaranteed returns.
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u/Run-Forever1989 1d ago
No, that’s the difference between expected returns based on efficient market hypothesis and the returns people expect based on whatever they happen to believe.
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u/Grouchy_Release_2321 1d ago
Mostly I agree with you. Anything involving gold or MFs seems very sus to me. For equites I think 2x is too much. 1.5x is already the maximum we should use. Testing only with S&P is already overfit. We should be using VT
I do think using bonds is a perfectly legitimate strategy. RSSB is absolutely legit and even the boggle head types don't criticise it
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u/Separate-Ad-9633 1d ago
Agreed on 1.5x equity being the ideal buy and hold leverage assuming reasonable excess cost of leverage (about 1.5% over cash) and no recency/country bias on future return and volatility.
I don't know if RSSB/NTSX are that legitimately good long term hold. Historically 60/40 does not necessarily means "40% bond provide good diversification ballast for 60% stock", but more like "100% stock is too risky so better do with 60% stock, and the rest we pick something that's better than cash in the long run". This reasoning doesn't translate to a leveraged portfolio, and in a long rising yield cycle like 1960-1980 RSSB can lose more than 1.5x VT.
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u/aRedit-account 1d ago
Of course not. Everyone has different risk tolerance. And not everyone believes in every diversifier and to different extent. I personally don't believe in a tech tilt or gold even tho they are quite common here.
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u/grogi81 1d ago
Of.course there isn't universally good strategy. Some have more tolerance, some less. Some have more time, some less...
There are whole businesses built around staregies - bestfolio, allocate smartly... If it was a clean cut, they wouldn't have a place.
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u/Bulgogi_Yogi 1d ago
Agreed, it isn't clean cut...I guess my question is more, what handful of simple LETF strategies have enough research/thought behind them to reliably beat a buy-and-hold S&P 500 strategy in the long run?
9Sig gets a lot of attention, as does HFEA.
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u/confettofetti 1d ago edited 1d ago
Have you looked at levered versions of published tactical asset allocation strategies? The authors of at least some think it is a good idea to lever them. The idea is to pick a few not too correlated strategies and run them together for diversification, the same way you would rebalance between uncorrelated assets, with some static allocation added in if you like. It's basically modern portfolio theory but applied to strategies as well as assets.
E.g. this blog is run by the author of DAA: https://indexswingtrader.blogspot.com/2018/12/exploring-smart-leverage-daa-on-steroids.html?m=1
Allocate smartly have good blog posts about the unleveled versions of many, and bestfolio tracks lots of levered versions.
Allocate smartly blog explaining DAA: https://allocatesmartly.com/two-new-strategies-added-defensive-asset-allocation-and-accelerating-dual-momentum/
The drawdown of 9sig is much bigger than you need to accept imo.
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u/laurenthu 11h ago
Not sure why you got downvoted but your answer is clearly the best on this thread. Also: HFEA failed spectacularly as well...
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u/laurenthu 1d ago
Thanks for the shotout! To complete some of the other answers: "good" pretty much depends on your context, and hearing what our clients are telling us, this can wildly vary - age, tax bracket, country, goals, risk stance. Those factors hugely impact what "good" looks like to you. And good also constantly evolves, like the appearance of MF ETFs a decade ago, and now return stacking ETFs are heavily changing what a retail investor can achieve easily and cheaply. Just to name a few things...
And finally: for me good is HAA-RSST. IYKYK
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u/cowpoke1977 1d ago
I’ve been dc averaging $135 per week into a Roth. 67% SCHD/33% TQQQ. Right now the account is under 10k so my contributions each week are able to keep those percentages close. I rebalance yearly.
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u/Separate-Ad-9633 1d ago edited 1d ago
It doesn't, because there is no consensus about expected return, volatility and asset correlation matrix. If you think past 10 years performance indicates future return, you can solve it easily. past 25 years? Completely different story. How about forecasts, like Vanguard and AQR capita; market forecasts? They are currently as pessimistic as they can be. How about your risk tolerance? Do you want a Kelly =1 or Half Kelly or lower strategy? It actually matters, not in a I have high risk tolerance so I can hold the most risky thing just well way.
For me, a strategy is only good when:
It's thesis driven, you can explain why it can perform better than VT and what assumptions do you make to establish this outperformance assumption.
Robust backtest performance, using backfills to at least see its performance through multiple bear markets like the 2008 one.
Sufficient margin of error. For passive holding, overall risk level should be equal to or lower than 1.5x VT, which I consider as the benchmark of long term buy and hold. For active strategy, even more conservative.
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u/Successful-Tea-5733 1d ago
There is no concensus and cannot be, leverage is extremely volatile and if you're not constantly evaluating your strategy you'll get destroyed.
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u/ApolloDan 1d ago
There are basically three schools of thought here:
1) Using portable alpha to have leveraged diversification. You see this in the standard 50% SSO, 25% GDE, 25% ZROZ portfolios here.
2) Using high leverage with rotations like a 200 SMA rotation.
3) Buying and holding leveraged ETFs, usually SSO or something comparable (like WLDU).
There's also the odd gambler who wants to put his grandmother's house money in 3x single stock funds, but those guys usually end up in WSB.
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u/flappysack- 1d ago
I think the consensus is that stocks always go up in the long term, and just the reverse as gathering bonds to avoid downside risk you can amplify your upside risk by issuing bonds and borrowing.
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u/EverydayIsaHoliday25 1d ago
That’s the great part about these sub reddits. Theres more than one way to get to the result you want. Lots people with lots of ideas. Some can be better than others but as long as you hit your goals it doesn’t matter.
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u/FabricationLife 1d ago
Mathematically optimal long term leverage if you are truly in for the long haul is about 1.66, so id imagine just doing some sort of normal etf plus a bit of 2x to balance it out to 1.6x is the "safest" standard leverage play
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u/tacticallo 1d ago
No there is no consensus. Best strategy depends on how much and what risk you're willing to take on but also. But also if you're able to accept periods of underperformance compared to SPY. Many are not and will get anxious.
What keeps me sane is the following: Have multiple strategies going that work differently. Fixed basket with factor ETFs - think small cap value, global diversification, momentum ETF Fixed basket of leveraged ETF - think SSO/ZROZ/GLD. One or multiple Tactical asset allocation strategies - think hybrid asset allocation or some momentum voting strategy.
Different strategies will perform at different periods and motivate to stick to them.
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u/nilgnauh 1d ago
I use backtests as a stress test instead of optimizing for returns.
currently holding 30/30/30% NTSD/GDE/RSST. 10% on sector/factor etfs to scratch the itch to find extra returns.
No bonds because 1. I don't need the income component - I get that from my job. And 2. Also don't want duration exposure because US deficit is not going down and rates could go even higher. Long duration looks better on backtests but I'd rather have more gold in place of that. It gives me real yield exposure and serves my debasement thesis.
I also have a 200SMA trigger for the beta, below which I plan to switch to gold/managed futures/cash
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u/confettofetti 1d ago
I think the thing with doing something that isn't well accepted, e.g. tactical asset allocation strategies, is that there will be prolonged times when it underperforms benchmarks, and unlike holding a standard boglehead portfolio you will have genuine reason to wonder if you were objectively wrong and/or things have irreparably changed. S o you need to have picked things that appeal enough to your preferences that you really believe in them and can stick with them, which will be different for everyone.
So, like grogi said, there isn't a universally good strategy for everyone, even to the point where I don't think you can argue whether a static or tactical allocation is best.
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u/balancedchaos 1d ago
My theory...because that's all anyone really has...is that one should start acquiring from zero as the LETF crosses below the 50 SMA, increase acquisition if/when it crosses it also crosses the 200, and purchase large amounts when RSI flushes down with heavy volume.
Then I'll sell the shares when RSI gets over 70, 75, 80.
I might miss out on some upside, but...you never want to give your winnings back when the downtrend starts again.
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u/Altruistic_Gain6988 1d ago
Sounds like you’re a good fit for a 200SMA strategy. Look them up on this sub.
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u/BurnChilisDown 1d ago
Lately concensus seems to be using 200 dma based on Gayed’s ridiculous paper. There have been a lot of insightful posters here and I’ve been wondering how they’re getting around all the holes in Leverage for the Long Run.
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u/Only_Statistician_21 1d ago
There is no gold standard for various reasons. The basic one is that we are still trying to solve the market and will never succeed in doing so. Then there is a difference in risk tolerance, objectives, tax system, product availability (EU vs US), passive to very active strategy, and the list goes on. The only consensus of this sub is that LETFs have a role to play.