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if I had that attitude, I might choose the triple nasdaq etf. that will probably give you more of a roller coaster ride. if you don't want to go quite that aggressive, then id stick it in one of the other non-leveraged index etf's and let it sit there untouched for a long time (ideally adding to it on a regular basis).
hmmm. So let's say I was to plop down £10,000 on this right now. After 1 year, what would you expect as a worst case scenario, best case and most likely case if you had to guess?
hmmm. So let's say I was to plop down £10,000 on this right now. After 1 year, what would you expect as a worst case scenario, best case and most likely case if you had to guess?
The nasdaq has about an average return of 10% and standard deviation of 25% per year. I don't know the exact exact #s but they should be in this ballpark. Let's use 2 standard deviations from the mean to be the best/worst cases.
Best case: + 60%
Worst case: -40%
These are for unleveraged investments denominated in US dollars.
I would not be able to predict the 3x leveraged etfs but you will not see 180% when the index returns 60% for sure (most likely much less)
hmmm. So let's say I was to plop down £10,000 on this right now. After 1 year, what would you expect as a worst case scenario, best case and most likely case if you had to guess?
One year is too short a time frame. If you're thinking that short term, then you shouldn't be investing in any stock market (US, UK, doesn't matter).
I would not be able to predict the 3x leveraged etfs but you will not see 180% when the index returns 60% for sure (most likely much less)
Actually, you absolutely COULD see that. You could see BETTER than triple the index if the market trends fairly steadily. For an example of this, you only need to look back at the past year: QQQ is up 35% while TQQQ is up 132%. That's about 3.7 times the index.
The fact that leveraged ETFs reset their leverage on a daily basis, combined with compounding, makes for returns that are BETTER than the ETFs' stated objectives during trending markets, and worse than their objectives in up and down markets. Over the long term (and often in the short term), you're always going to have a fair amount of up and down, which is why leveraged ETFs are not good choices for long-term investments. But as long as the market is trending, you can do very well.
Actually, you absolutely COULD see that. You could see BETTER than triple the index if the market trends fairly steadily. For an example of this, you only need to look back at the past year: QQQ is up 35% while TQQQ is up 132%. That's about 3.7 times the index.
The fact that leveraged ETFs reset their leverage on a daily basis, combined with compounding, makes for returns that are BETTER than the ETFs' stated objectives during trending markets, and worse than their objectives in up and down markets. Over the long term (and often in the short term), you're always going to have a fair amount of up and down, which is why leveraged ETFs are not good choices for long-term investments. But as long as the market is trending, you can do very well.
3.7x.. is that just for that particular instance or the expected value of the ratio of the 3x etf return to the underlying return over all arbitrary intervals? Even if it's that high, past performance will not guarantee similar future performance.
It's very rare to see an unusually strong trending market with low volatility.. volatility may be lower in uptrending than downtrending markets but take a look at the late 90s.. when the market went parabolicly up, volatility went up as the market made godly gains. In that sort of environment, 3x ETFs may not track the market very well.
I also highly doubt a beginner will have the knowledge ,discipline, and tax efficiency to take full advantage of 3x ETFs
Last edited by ragnarkar; 02-22-2014 at 01:37 AM..
I also highly doubt a beginner will have the knowledge ,discipline, and tax efficiency to take full advantage of 3x ETFs
if he wants a roller coaster ride, id say he should do the triple nasdaq. but not with thinking about 1 year time frame, put that 10,000 whatevers into it and sit on it 10 years.
3.7x.. is that just for that particular instance or the expected value of the ratio of the 3x etf return to the underlying return over all arbitrary intervals? Even if it's that high, past performance will not guarantee similar future performance.
I was just providing an instance demonstrating how a leveraged ETF will generally provide returns greater than it's stated (daily) objective in a trending market. Like I said, the more volatility, the worse returns will be. So no, one definitely should NOT expect a return of 3.7 times the index over all arbitrary intervals. If you catch a trend, you'll do great, but you're basically rolling the dice there.
The relationship between volatility and return with the leveraged ETFs is just a mathematical thing due, as I said, to the daily resetting of leverage and compounding. In fact, I once created a spreadsheet that demonstrated the effect. I should have taken it a step farther to see if I could discover how much volatility it takes to affect return x-much, but I didn't. Probably would have been too difficult anyway.
Quote:
I also highly doubt a beginner will have the knowledge ,discipline, and tax efficiency to take full advantage of 3x ETFs
Well, I agree and certainly didn't mean to imply otherwise. Even NON-beginners are going to have a hard time timing trends. Leveraged ETFs are really for experienced short-term traders, and like any leveraged instrument, are a double-edged sword.
okay okay, this is all interesting stuff but perhaps I'm getting ahead of myself here. If I do go into investing, it won't be something I dive into any time soon. I need to do my homework. Maybe I'll read up on it when I've got time for it over the next year or so. What I could do with at this moment is a list of topics and terms that any noob should understand before handing over any money, or websites to visit, tv shows or podcasts or whatever that I should be listening to.
Leveraged ETFs should not even be mentioned in this thread.
it seemed appropriate based on the OP's criteria
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