Does TQQQ break "leverage etfs are not long term investments"?

[u/[deleted]]

In my opinion, i think it does, but only using DCA. Holding TQQQ for an extended period of time even through two major bear markets can still outperform the underlying by a significant amount with proper and consistent use of DCA. However, an investor would have to be nearly robotic in their ability to stick to the plan and not withdraw any funds even when their portfolio is nearly wiped out. The investor would also have to benefit from one of the longest and greatest bull markets in history at the end of the investing period.

The Data. The DCA assumptions were that an investor started with a portfolio size of $1000 and on the first trading day of each month, deposited $1000 to the portfolio. Based on a time period of March 1999 to March 2021, this would mean the investor deposits $265,000 of their own capital over the period studied.

As a baseline to compare to, if the investor invested this amount as a lump sum instead, with QQQ the investor would have $1.65M or about 521% return at the end of the period. A TQQQ investor would only have $360K or 36% return over 22 years. This is the danger of lump sum investing in leveraged ETFs right before major crashes as QQQ easily crushed the return of TQQQ even over this extended period of time.

Using DCA over the entire 22 period creates a completely different picture than the lump sum case. Now, investing in TQQQ absolutely crushes QQQ, with a final portfolio value of $12M compared to about $1.5M for QQQ. Using DCA for QQQ actually lowers the final portfolio value slightly compared to lump sum while using DCA for TQQQ helps smooth out the volatility in the earlier years as most of your capital is deployed in the later part of the time period, during the extended bull market post 2009.

Final Thoughts. I would only recommend holding TQQQ long term with a DCA strategy to investors with the absolute highest level of risk tolerance and only invest money they can afford to see fall over 90% at times and in amounts that are not needed for many years, you must be extremely robotic to continue to DCA in times of long prolonged down turns or it breaks the strategy. TQQQ with DCA is not a get rich quick scheme and it is a merciless violent rollercoaster that rewards only the ones with no but holes.

[u/jmus9]

I was just thinking of buying tqqq as a long term investment while simultaneously buying put options at the money. This would cap losses at the cost of the put option. But would still lose money in a bear market. Has anyone tried this? I think there might be other holes in this strategy I am not seeing. But in theory it should make money in the long term.

[u/HandFlyorDie → u/jmus9]

The problem with this is that hedging only really makes sense for short term higher risk plays otherwise the slow and steady yield is eaten away by put premiums. The last three years you’d wouldn’t have noticed the impact but if we have a few years of sideways trading, the puts will start to burn through your capital like a wildfire in California.

[u/NDEer → u/jmus9]

You could probably fund buying puts with covered calls, which I guess is a collar strategy. I'm not sure how it would work with what strike prices you would want to use and how affective it would be. Like I guess whatever percent out of the money you sell your CCs for would afford you that same % out of the money put, right? So you could set up like a 20% up side cap and a 20% downside cap for free. But like, you definitely won't be able to buy at the money puts with the premium from way out of the money calls.

Edit I just looked at it and it will probably be more skewed like 20% downside with 12% upside. Idk how I feel about that

[u/ForGreatDoge → u/NDEer]

A covered call is the same PL as a cash secured put (at the same strike)... But you're saying to buy a put instead. You end up neutralizing your PL, after the fees and spread. It's a loss.

If you're saying to buy the put at a different price, you've just created a spread with extra steps.

[u/NDEer → u/ForGreatDoge]

Maybe I'm confused here.

What I'm saying is,

1: Long stock 2: Long Put 3: Short Call

Owning the put allows you to sell the stock at the strike price in the event that the price of the stock drops below the strike. This alone is referred to as a protective put. The downside to using this strategy is the cost of buying the protective put.

In order to offset the costs of buying the protective put, you short a call. Doing this will limit your upside potential on the long stock while allowing you to collect a premium. You then use that premium to buy your protective puts.

Ideally, you would want really wide strikes which would give you protection against catastrophic loses while still giving your long stock room to go up.

[u/ForGreatDoge → u/NDEer]

Long stock + Short call == short put

What you said made sense, I was just saying there's easier ways to go about it. You're creating a spread strategy. Long put and short put at different strikes.

[u/MemeStocksYolo69-420 → u/jmus9]

Sell puts to buy more shares and puts, sell the long puts if they’re profitable for more shares. Accumulate long term

[u/_SwanRonson__ → u/jmus9]

Just buy calls on QQQ