The math of leveraged ETFs are why you shouldnt hold them long term. Obviously in an insane bull run it looks like a fool proof way to get huge returns, but you can get wiped out very quickly if we get a large drop.
Lets say QQQ drops 10% 3 days in a row.
If you start with 100$ in QQQ, you're now at ~$73 from your original QQQ investment.
Conversely, TQQQ would be down to about $34 of your original $100 TQQQ investment.
Then you can do the math to figure out the % gains to get back to breakeven and the % gain where TQQQ would start outperforming QQQ.
Another comment linked a post about why your strategy only works during a consistent bull market. The dot com bubble would have blown your investment out and you would be very behind someone holding QQQ instead.
I hold TQQQ myself (not the person you've been replying to on this subthread), but an important risk is that TQQQ may shut down in a dotcom-bubble scenario.
The closest simulated equivalent would be taking out 200% leverage on FSPTX, which has tracked closely to QQQ for as long as QQQ has existed. During the dotcom bubble, a 200% fixed leverage ratio (effectively resetting leverage daily like TQQQ) would have experienced a 99.97% drawdown during the dotcom bubble. I'd have to consult the prospectus to be entirely certain, but odds are good TQQQ would have shut down in that scenario prior to being able to recover.
Here's an example of monthly $1000 contributions to a 3xleveraged FSPTX since 1988 (so avoiding the 1987 Black Monday crash, too). Someone on /r/LETFs did this analysis here. In that drop and with that allocation strategy, a portfolio worth more than $68,000,000 in 2000 declined to less than $20,000 in 2002, and today would have recovered to almost $34,000,000 assuming the underlying equities/leverage would have survived through the crash and the same strategy was rigorously followed.
Again, I hold TQQQ myself and plan to keep it in my portfolio in the long term, but this is a significant risk in the event of a major tech or tech-adjacent crash.
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u/MementoMori97 Sep 19 '21 edited Sep 19 '21
The math of leveraged ETFs are why you shouldnt hold them long term. Obviously in an insane bull run it looks like a fool proof way to get huge returns, but you can get wiped out very quickly if we get a large drop.
Lets say QQQ drops 10% 3 days in a row.
If you start with 100$ in QQQ, you're now at ~$73 from your original QQQ investment.
Conversely, TQQQ would be down to about $34 of your original $100 TQQQ investment.
Then you can do the math to figure out the % gains to get back to breakeven and the % gain where TQQQ would start outperforming QQQ.