Is a market-tracking leveraged ETF more reward for same risk?
Due to the way gains compound on one another, and the daily resetting of leveraged ETFs, a 3x ETF will yield MORE than 3x of the underlying asset (in a bullish market), sometimes up to 10x gains in a yearly period. This makes the long-term investment look very tempting but any reward should come with risk. I've investigated the risks, and have debunked a few of them myself:  In a stagnant market, a leveraged etf is subject to volatility drag and higher management fees , however the market has not been stagnant in the last 100 years. Any period of stagnation is short-lived, and similar to the principle of value investing, we would be looking to hold the asset for more than 5 years. Any sort of loss over some period (say 10% loss over 5 stagnant years) will be received again by only a 3.3% upswing in the asset. I feel like this "risk" is sort of moot. , however the market has not been stagnant in the last 100 years. Any period of stagnation is short-lived, and similar to the principle of value investing, we would be looking to hold the asset for more than 5 years. Any sort of loss over some period (say 10% loss over 5 stagnant years) will be received again by only a 3.3% upswing in the asset. I feel like this "risk" is sort of moot. If the tracked asset falls 33% in a day, the fund will be wiped out (assuming 3x etf) If we invest in a broad-reach etf (SPXL, TQQQ) we would effectively eliminate this risk, because the underlying asset, being the market, will need to fall 33% but there are limits on the US market so that the market cannot fall more than 20% in a single trading day. If we invest in a broad-reach etf (SPXL, TQQQ) we would effectively eliminate this risk, because the underlying asset, being the market, will need to fall 33% but there are limits on the US market so that the market cannot fall more than 20% in a single trading day. If the underlying asset falls, a significant portion of the investment will be lost Underlying assets tend to rebound. If there is a drop of 10%, the asset tends to recover by at least 11% in the future and considerably more. Assuming the underlying asset is the market, it has always recovered and exceeded previous highs. Therefore this risk contributes more to timing than anything -- if I know I need to pull money out in exactly 5 months, the market could be down, but assuming I don't have a need to pull the money out at any specific point in time, i mitigate the risk of withdrawing during a low market, eliminating losses here. Underlying assets tend to rebound. If there is a drop of 10%, the asset tends to recover by at least 11% in the future and considerably more. Assuming the underlying asset is the market, it has always recovered and exceeded previous highs. Therefore this risk contributes more to than anything -- if I know I need to pull money out in exactly 5 months, the market could be down, but assuming I don't have a need to pull the money out at any specific point in time, i mitigate the risk of withdrawing during a low market, eliminating losses here. Diversification is important so do not put all your money in one stock Something like the SPXL or TQQQ will track a diverse market, therefore diversification is built in. With all of this, a 3x ETF tracking the market (SPXL, TQQQ) sounds like a clear winner. Historical records show a 15,000% gain over 11 years on TQQQ. If prior performance is any indicator of future performance then this would be an obvious choice. EDIT: the "market" referenced here is the US market