3x levered ETFs are horrible long-term investments.

There have been several posts about buying 3x levered ETF as long term investment. However that is not a great idea. Here is why:

Assume we have an index at 100$ and a 3x levered ETF.

If the index gains 3%, they would close at 103 and the 3xETF at 109. Easy until now.

Lets then assume that the index declines for 5%. So it closes at 97.85. The 3xETF returns 3x the daily performance, so it would close at 87.55.

The next day, the index gains 2.2%, so it closes at 100. The 3x deliveres 3x the performance which is 6.6%, so it would close at $93.32.

As we can see, with a choppy markets we will lose a bunch of performance. The reason for it are simple margin requirements.

The company providing the 3x levered ETFs does not want to go bankrupt. So when the market goes up, in order to deliver the daily returns the company buys more shares. If it goes down, it sells the shares. That reduces the returns.

That is why the QQQ returned 119,05% , and the TQQQ the 3x levered ETF delivered 284,33% – which is 2.4x the return not 3x.

This 2.4x return is in a historic bull market. If the market is choppier – the 3x ETF returns would decline and might even close below the underlying index.

Add the risk that the 3x levered Index can go to 0 if the Nasaq closes down 33.3%. It is unlikely and we have never seen it, but the market is unpredictable.

3x levered ETFs are a great for short term investments, but can be horrible for the long run. Please be cautious.