SPY vs SPXL [SPDR S&P 500 vs Direxion Daily S&P 500 3X leveraged]

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BobaTeaGood
Posts: 14
Joined: Wed Oct 10, 2018 1:07 pm

SPY vs SPXL [SPDR S&P 500 vs Direxion Daily S&P 500 3X leveraged]

Post by BobaTeaGood » Wed Oct 10, 2018 1:13 pm

For my long-term investments, say my 401K, where I won't/don't want to withdraw my money for 15-20 years, if the odds are very, very strong that the S&P will be more in 2038 than what it is today, should I just put my money in SPXL rather than SPY? Welcome your insights.

StrangePenguin
Posts: 49
Joined: Tue Mar 27, 2018 11:35 am

Re: SPY vs SPXL [SPDR S&P 500 vs Direxion Daily S&P 500 3X leveraged]

Post by StrangePenguin » Wed Oct 10, 2018 2:05 pm

If you dig into the performance history, you will find that the Nx leveraged funds DO NOT return exactly Nx the underlying index's return.

As an example, if the returns of the leveraged fund were just an "amplification" of the plain fund, then you would expect that an investor who put $10k into the leveraged fund on the day of the market peak before the 2008 crash would break even on the same day as the investor who put $10k into the index on the same day. But that is *not* the way it works. It took much longer for the leveraged investor to recover.

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Phineas J. Whoopee
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Joined: Sun Dec 18, 2011 6:18 pm

Re: SPY vs SPXL [SPDR S&P 500 vs Direxion Daily S&P 500 3X leveraged]

Post by Phineas J. Whoopee » Wed Oct 10, 2018 2:10 pm

BobaTeaGood wrote:
Wed Oct 10, 2018 1:13 pm
For my long-term investments, say my 401K, where I won't/don't want to withdraw my money for 15-20 years, if the odds are very, very strong that the S&P will be more in 2038 than what it is today, should I just put my money in SPXL rather than SPY? Welcome your insights.
Hi BobaTeaGood, and welcome to the forum.

Inverse and leveraged funds (ETFs are funds) do not work like one might think just based on their names. You may want to read our wiki article: Inverse and leveraged ETFs.

I have a dedicated detractor who consistently replies that maybe I'm too stupid to make money from them, but smart people can. The individual might respond.

PJW

MotoTrojan
Posts: 2290
Joined: Wed Feb 01, 2017 8:39 pm

Re: SPY vs SPXL [SPDR S&P 500 vs Direxion Daily S&P 500 3X leveraged]

Post by MotoTrojan » Wed Oct 10, 2018 2:26 pm

These are instruments meant for trading, not holding, even as a professional.

If what you desire really existed, you'd be able to generate infinite wealth.

Jags4186
Posts: 2478
Joined: Wed Jun 18, 2014 7:12 pm

Re: SPY vs SPXL [SPDR S&P 500 vs Direxion Daily S&P 500 3X leveraged]

Post by Jags4186 » Wed Oct 10, 2018 2:58 pm

BobaTeaGood wrote:
Wed Oct 10, 2018 1:13 pm
For my long-term investments, say my 401K, where I won't/don't want to withdraw my money for 15-20 years, if the odds are very, very strong that the S&P will be more in 2038 than what it is today, should I just put my money in SPXL rather than SPY? Welcome your insights.
They perform great in long bull markets and will wipe you out in bad markets. Here’s a very simple example. Say you are in a 3x leveraged ETF and the market declines 35% today and then goes up 54% the next day. A person invested in the market, unleveraged, would end up back where they started. The person who was in the 3x leveraged ETF would have lost all of their money on the down day and would have had $0 to get the following days +162%.

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