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Comment by mkotlikov | Hacker News Reader

The problem isn't leveraged funds, it's margin on leveraged funds.

Leveraged funds are the safest way for the average investor to get access to leverage because unlike margin there is no risk of margin calls, and your money generally won't go to zero unlike options which are vastly more complicated and can expire.

The reality is that using leveraged funds (or any leverage) is a completely rational move because the average person will never retire wealthy unless they're already making a tech salary or similar.

Investing has always been gambling, even Warren Buffet made his biggest early wins on all-in bets.

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> Leveraged funds are the safest way for the average investor to get access to leverage

I... do not agree that leveraged funds are somehow a safest way to access leverage.

Every product including leverage has inherently a non-linear P&L. And from my experience, non sophisticated investors always struggle to grasp the implications of that. It makes returns (on capital) very path dependent, and very nasty during volatile regimes. It breaks the naive assumption of "well I could always hold and wait for the dust to settle".

> unlike margin there is no risk of margin calls

This is a bit of a weird statement. Leverage implies margin, you cannot make it disappear, the funding and associated risk has to come from somewhere, it's just that it is continuously applied, instead of fixed timings.

I do agree that it simplifies planning and reserve management though.

> even Warren Buffet made his biggest early wins on all-in bets.

This is a bit disingenious, note that Buffet did not use leverage...

> This is a bit disingenious, note that Buffet did not use leverage...

In a way, but Buffet wasn't making those investments exclusively using his own money. Effectively there's a degree of implied leverage when you get a performance reward from investing other people's money.

Buffet funded his investments with insurance float

Leveraged funds can be an excellent tool for portfolio construction, for example, products like 100% stocks + 100% bonds (so -100% cash; internally borrowed in the ETF), e.g. RSSB.

And just because it's available doesn't mean it should be your only ETF/ETP. Not a recommendation or advice, but something like 50% TQQQ, and 50% risk-off asset (gold, bonds, whatever); rebalanced regularly isn't crazy, and might even have alpha.

If you invest only $200 a month in the S&P 500 from the age of 18 to 65 you'll end up retiring a multi-millionaire. It doesn't take a lot but people are either unaware of how it works or not disciplined enough to put aside $200 a month. Considering that on average Americans are spending $150+ a month on subscription services and $300+ eating out there's plenty of room in the budget for investing $200 a month.

There's very few people in the world that can maintain 47 years of uninterrupted discipline. Most people hit one or a number of:

- A significant health issue that also drains them economically

- A broken marriage that cuts their savings in half (or less)

- A low point in their life where saving for retirement just doesn't make sense in their heads anymore because they feel they'd rather die tomorrow.

- A streak of bad events longer than they planned for (the car breaks down, they got fired and their mother-in-law needs financial assistance all at the same time)

- Etc, etc...

The point is: nobody is retiring a millionare through the process you described. Either you save signfiicantly more at certain points (because you earn more) and get lucky enough with the above where you make it there, or you don't retire a millionare even after having saved consistently for many periods in your life.

$200 per month is the minimum to retire with $2 million+. But you can always put more in as your financial situation improves (like getting a raise). You can also make wiser decisions like not getting a $770 a month car payment (yes, that's the current average new car payment in the US).

I work with clients of all financial levels and almost all of them have upwards of $600 a month to put toward retirement/investments once they get on a proper budget and develop the discipline to stick to it.

Yes, emergencies happen but not as often as you'd think and most incidents are manageable, especially if you plan for them. Saving ahead of time for car maintenance or AC replacement, having a bucket for medical expenses or family, getting a prenuptial agreement, etc.

I've been a financial coach for over 20 years and almost all my clients who have reached retirement age have done so as millionaires using this exact method.

$200 per month 47 years ago is the purchasing power equivalent of $900 today.

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