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Comment by kypro | Hacker News Reader

It's only ever clever in hindsight. It's possible the best move right now is to buy 3x levered NASDAQ ETFs. And in hindsight it will look genius and obvious - market is down, buy levered ETFs. But the fact the market is down so much and you're now thinking about shorting kinda explains why it's not easy.

Also, bare in mind the only way to make money from a short position is to know when to sell - so how much further do you think markets will fall?

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Leveraged ETFs are what I consider “pro” level financial instruments. If you don’t trade them for a living you are probably better off not trading them at all. It’s extremely common to misunderstand how the leverage works and think that “oh if I hold a -3x leveraged S&P500 ETF it will give me 3x if the index goes down”. It doesn’t work exactly like that because the time horizon where you hold it matters a lot. A lot of times you only realize that 3x if you trade in and out intraday.

Buying levered ETF and holding for more than a few days is terrible advice. They decay rapidly when QQQ goes sideways or bleeds slowly even.

I like leveraged ETFs but only in market environments with low volatility and high probability of consecutive daily positive returns. Historically those markets environments usually coincide with the major indexes (S&P, Dow, Nasdaq) being above the 200 day moving average, a good benchmark for the market being in an uptrend and volatility being low. Bear markets significantly under the 200 day like right now are generally marked with much less chance of consecutive positive returns and high volatility both of which crush the returns of leveraged ETFs e.g. TQQQ, SOXL, and friends. The upshot is I'm sitting things out for the time being.

NEVER hold levered ETFs for more than a day or so. They decay horribly and in markets where there's a lot of volatility, they decay very quickly. You will lose a lot of money buying and holding any type of levered ETF.

Their real use case is for day-trading.

Taking in consideration how much the market appreciated, there's still a lot of room for correction. People compare the SPY returns in 2008 to 2022, but pre 2008 we didn't have such a pump like the covid pump and even 10 years of up only before that, financed by low interest rates and QE. Markets need a reset. Be patient, make buck and invest it, we might get a whole decade of ranging markets, be prepared.

Which ETF is that?

TQQQ is an example: https://totalrealreturns.com/s/TQQQ

I’m not recommending this. Be careful. It’s daily leverage (intended for short term use). If you look at it over longer periods, there is very very substantial drag. As a short term gamble with a single digit percentage of your portfolio, maybe.

See also this article about risks of leveraged ETFs: https://www.bogleheads.org/wiki/Leveraged_and_inverse_ETFs

Edit: here’s a chart comparing TQQQ to plain QQQ: https://totalrealreturns.com/s/TQQQ,QQQ

Oh, I'm not buying it, am bogelhead. Still off this year but had cash around to "but the dip" as they say.

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