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More and more as I earn paper profits daily I wonder how flawed my thinking is. Not IF it's flawed. But how badly. It's good to be diversified right? Nasdaq 100 is a broad range of stocks / diversified somewhat? Yes tech heavy to a degree. And it's larger sticks so you miss out on diversification to small and medium cap. But certainly not fly by night / flash in pan companies. So qqq is a good ETF? What about tqqq then? Triple leveraged? Yeah it's leveraged so swings are more dramatic. All fine in this up market, just a question of knowing when to step aside as the elevator goes down? And if the market drops 33% or so, that's the end of your investment ? I'm in that etf pretty heavy at this point. How foolish is that ?
What about tqqq then? Triple leveraged? Yeah it's leveraged so swings are more dramatic. All fine in this up market, just a question of knowing when to step aside as the elevator goes down? And if the market drops 33% or so, that's the end of your investment ? I'm in that etf pretty heavy at this point. How foolish is that ?
It's pretty foolish, all right. Not necessarily because of the leverage, but because you're heavily invested in something you don't really understand.
Leveraged ETFs are not really for investing at all. They're for very short-term plays. Long-term, they're very likely to suffer from price decay due to the daily resetting of leverage + compounding. And yes, if they turn against you, you'll lose so fast that the "decay" won't bother you much. I guess you could look at that as a plus, if you're a real optimist.
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And if the market drops 33% or so, that's the end of your investment ?
No, because of the aforementioned daily resetting of leverage. You can lose most of your investment fairly quickly, but the rate of loss will decrease as the price drops, and you'll never lose ALL of it. On a related note, leveraged ETFs, because of price decay, tend to reverse-split relatively frequently, so the share price will never get TOO low. (Not that that fact will affect the value of your overall investment in any way.)
The QQQ is up roughly 33% this year. It has not had any reverse splits and the last split was a 2 for 1 in 2000. The Q's are the largest non-financials in the Nasdaq.
You know how many shares of QQQ you have.
When do you think the next 30% decline will happen and why?
Exotic/risky investments have their place, but only on the fringe of one's portfolio, in a small compartment set aside for "play". If we believe that stock indices oscillate but ultimately ascend, then leveraging makes sense in theory, if the investor has the fortitude to avoid selling in a bear market, and has enough capitalization to not be forced to sell. So goes the theory. In practice, the more complicated the scenario, the better it is to be leery.
More and more as I earn paper profits daily I wonder how flawed my thinking is. Not IF it's flawed. But how badly. It's good to be diversified right? Nasdaq 100 is a broad range of stocks / diversified somewhat? Yes tech heavy to a degree. And it's larger sticks so you miss out on diversification to small and medium cap. But certainly not fly by night / flash in pan companies. So qqq is a good ETF? What about tqqq then? Triple leveraged? Yeah it's leveraged so swings are more dramatic. All fine in this up market, just a question of knowing when to step aside as the elevator goes down? And if the market drops 33% or so, that's the end of your investment ? I'm in that etf pretty heavy at this point. How foolish is that ?
QQQ isn't diversified at all, as you grudgingly admit in your own post. The top 10 holdings make up 49% of the ETF. That doesn't even remotely qualify as diversified.
Triple leveraging it would be like triple suicide IMO.
I say it all the time nowadays...investing is supposed to be BORING. Invest in a mix of stocks and bonds and keep adding to it. Ideally, try to put your savings in a balanced fund that does it all for you. People actually get the best returns from these funds because they don't go to extremes, and people tend to stick with them.
Funds like:
Vanguard Balanced Index (if you like Index funds). Personally I think there are better balanced funds out there than this one, but you could do a lot worse.
Vanguard Wellington
T. Rowe Price Capital Appreciation
Oakmark Equity and Income
Mairs and Power Balanced
Dodge & Cox Balanced
Pick one or two of the above funds. Keep adding as much money as you reasonably can until you are ready to start living off the proceeds. Withdraw no more than 4% from your fund when you start taking distributions, ideally less.
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Not necessarily because of the leverage, but because you're heavily invested in something you don't really understand.
