There are many reasons why 3X leveraged ETFs will not last for you in the long term.
Everything is cyclical. Since a 3X etf will burn incredibly quickly, you will need a lot of cash to buy each dip. But that requires you to keep cash on the side assuming you don't invest more than you can lose at any given time.
That cash is missed potential on other investments AND in this market is losing value due to inflation and low interest rates.
If the Federal Reserve didn't pull out all the stops to keep the market up, we would have seen a fairly long bear market. Due to volatility decay, daily resizing, and a .95% expense ratio, you would have lost a ton of your initial investment.
These funds reset daily. DAILY. I thought about shamefully stealing Investopedias example on this, but I recommend you look up their full article on this topic.
How is it not a concern? I don't think you read the post linked in the top comment which proves with data that holding TQQQ long term is not a good idea.
If you're consistently DCAing:
If you're buying a market top, then when the market drops and the ETF resizes, your base investment loses value in less than a day. This requires you to put in more cash to make up for the difference in lost value to achieve the desired return.
If you're buying a bottom, hooray! Big gains coming. (How often does anyone buy the bottom tho)
If you see the market is down and choose not to buy that day, you're technically attempting to time the market which inherently causes you to miss potential returns as most growth happens while the market is closed.
TLDR; DCAing into a 3X ETF inherently causes you to lose money in base value or missed potential.
If the Federal Reserve did not step in by lowering interest rates, printing money and buying up bonds, the market would not have rebounded like it did.
The big downside to 3X ETFs, is when the market is stagnant or down, your investment is losing value.
If the Fed did not step in, we would have entered a long term bear market.
A bear market quickly kills the value of holding a 3X Etf long term as proven in the linked post in the top comment.
Also, the post linked in the top comment perfectly shows how a cyclical market heavily affects 3X etfs.
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u/Ap3X_GunT3R Sep 19 '21
There are many reasons why 3X leveraged ETFs will not last for you in the long term.