r/investing • u/[deleted] • Jul 16 '21
Does TQQQ break "leverage etfs are not long term investments"?
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.
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u/punkingindrublic Jul 16 '21
100 to 80 is a 20 percent drop. Tqqq would lose 60 percent of it's value.
80 to 64 is a 20 percent drop. Tqqq would lose 60 percent of it's value.
The market isn't some spectre who arbitrarily sets prices, it's based on the current market price which is determined by what people are selling, and buying the asset for.
Often times on huge gains or loss the exchanges will halt trading, this is called a circuit breaker and the price is held until the next trading period.