[Leveraged ETFs vs. Bogleheads Investment Philosophy]

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KyleAAA
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Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by KyleAAA » Sun Sep 08, 2019 2:20 pm

Leveraged ETFs are just a tool and can be used in ways entirely consistent with Bogleheads philosophy. But even if they’re used in a way inconsistent with Bogleheads philosophy, I’m not sure there’s a justification for censoring discussion.

But a blanket statement that they are irresponsible tools for long term investment is flat wrong.

MotoTrojan
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Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by MotoTrojan » Sun Sep 08, 2019 2:40 pm

rascott wrote:
Sun Sep 08, 2019 2:08 pm
HEDGEFUNDIE wrote:
Sun Sep 08, 2019 1:14 pm
All this talk about how bad leverage is is making me antsy.

I’ve been back and forth about what to rebalance my EDV gains into. Now I’m confident PSLDX is the right place for that money.

I've been buying both PSLDX and PSPTX in my Roth accounts.
Interesting funds and I considered it, but I wish they had an offering that stuck to treasuries. I feel my 43/57 UPRO/EDV compromise is pretty similar to that (even without using futures) with just a bit more equity leverage, and am going to continue contributing there for now; saves me the trouble of a new IRA at Ally too.

NTSX is of interest to me as well for taxable.

HEDGEFUNDIE
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Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by HEDGEFUNDIE » Sun Sep 08, 2019 2:56 pm

rascott wrote:
Sun Sep 08, 2019 2:08 pm
HEDGEFUNDIE wrote:
Sun Sep 08, 2019 1:14 pm
All this talk about how bad leverage is is making me antsy.

I’ve been back and forth about what to rebalance my EDV gains into. Now I’m confident PSLDX is the right place for that money.

I've been buying both PSLDX and PSPTX in my Roth accounts.
Interesting. What’s your rationale for PSPTX? Rising rate protection?

JBeck
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Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by JBeck » Sun Sep 08, 2019 3:17 pm

rascott wrote:
Sun Sep 08, 2019 2:08 pm
HEDGEFUNDIE wrote:
Sun Sep 08, 2019 1:14 pm
All this talk about how bad leverage is is making me antsy.

I’ve been back and forth about what to rebalance my EDV gains into. Now I’m confident PSLDX is the right place for that money.

I've been buying both PSLDX and PSPTX in my Roth accounts.
How much of these funds is too much, i.e., would you be comfortable with the majority of your large cap holdings being in these?

JBeck
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Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by JBeck » Sun Sep 08, 2019 3:23 pm

Not sure why this thread is still going on, Lady Geek said that talking posting about leverage funds does not violate forum rules. End of story, no? On a different note, I get the feeling that some people are afraid of ideas :idea:

rascott
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Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by rascott » Sun Sep 08, 2019 3:28 pm

JBeck wrote:
Sun Sep 08, 2019 3:17 pm
rascott wrote:
Sun Sep 08, 2019 2:08 pm
HEDGEFUNDIE wrote:
Sun Sep 08, 2019 1:14 pm
All this talk about how bad leverage is is making me antsy.

I’ve been back and forth about what to rebalance my EDV gains into. Now I’m confident PSLDX is the right place for that money.

I've been buying both PSLDX and PSPTX in my Roth accounts.
How much of these funds is too much, i.e., would you be comfortable with the majority of your large cap holdings being in these?
I would be fine holding all my large cap equity in them.... only in tax advantaged accounts, however..perhaps a mix of them to give you some diversification across the yield curve. Their original fund using this strategy has been around since 1986, so it's not some Johnny come lately.
I'm personally limited as several of my accounts don't have it as an option for the institutional level funds. You can buy the Absolute Return investor class (PTOAX) about anywhere for NTF.... but are stuck paying an extra 0.25% ER.
Last edited by rascott on Sun Sep 08, 2019 3:32 pm, edited 1 time in total.

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Tyler Aspect
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Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by Tyler Aspect » Sun Sep 08, 2019 3:31 pm

JBeck wrote:
Sun Sep 08, 2019 3:23 pm
Not sure why this thread is still going on, Lady Geek said that talking posting about leverage funds does not violate forum rules. End of story, no? On a different note, I get the feeling that some people are afraid of ideas :idea:
I originally asked this question in the moderation forum, but this thread is now is the "Theory, News & General" forum with a new message title. I and others can now use this thread to discuss the suitability of leveraged ETFs.
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

rascott
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Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by rascott » Sun Sep 08, 2019 3:35 pm

HEDGEFUNDIE wrote:
Sun Sep 08, 2019 2:56 pm
rascott wrote:
Sun Sep 08, 2019 2:08 pm
HEDGEFUNDIE wrote:
Sun Sep 08, 2019 1:14 pm
All this talk about how bad leverage is is making me antsy.

I’ve been back and forth about what to rebalance my EDV gains into. Now I’m confident PSLDX is the right place for that money.

I've been buying both PSLDX and PSPTX in my Roth accounts.
Interesting. What’s your rationale for PSPTX? Rising rate protection?

Yeah didn't want to start piling in long duration only during the current environment. I know it makes the most sense theoretically, but current yield curve is expected to benefit shorter duration from here, for a while. PSLDX didn't do well the past couple cycles the following year when LT rates down this low. Obviously if I was already in, I'd just hold... just a bit of shameful market timing on my part, pls liked the idea of both of them for different markets.

HEDGEFUNDIE
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Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by HEDGEFUNDIE » Sun Sep 08, 2019 3:38 pm

rascott wrote:
Sun Sep 08, 2019 3:35 pm
HEDGEFUNDIE wrote:
Sun Sep 08, 2019 2:56 pm
rascott wrote:
Sun Sep 08, 2019 2:08 pm
HEDGEFUNDIE wrote:
Sun Sep 08, 2019 1:14 pm
All this talk about how bad leverage is is making me antsy.

I’ve been back and forth about what to rebalance my EDV gains into. Now I’m confident PSLDX is the right place for that money.

I've been buying both PSLDX and PSPTX in my Roth accounts.
Interesting. What’s your rationale for PSPTX? Rising rate protection?

Yeah didn't want to start piling in long duration only during the current environment. I know it makes the most sense theoretically, but current yield curve is expected to benefit shorter duration from here, for a while. PSLDX didn't do well the past couple cycles the following year when LT rates down this low. Obviously if I was already in, I'd just hold... just a bit of shameful market timing on my part, pls liked the idea of both of them for different markets.
Makes sense. Good luck

MotoTrojan
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Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by MotoTrojan » Sun Sep 08, 2019 3:41 pm

HEDGEFUNDIE wrote:
Sun Sep 08, 2019 2:56 pm
rascott wrote:
Sun Sep 08, 2019 2:08 pm
HEDGEFUNDIE wrote:
Sun Sep 08, 2019 1:14 pm
All this talk about how bad leverage is is making me antsy.

I’ve been back and forth about what to rebalance my EDV gains into. Now I’m confident PSLDX is the right place for that money.

I've been buying both PSLDX and PSPTX in my Roth accounts.
Interesting. What’s your rationale for PSPTX? Rising rate protection?
Interesting fund/combo indeed. Actually had a good bit more drawdown during the GFC than PSLDX or S&P500 at 55%, but a decent boost in returns (not much change in Sharpe though). I could see it reducing regret somewhat.

griffin3141
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Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by griffin3141 » Sun Sep 08, 2019 4:19 pm

rascott wrote:
Sun Sep 08, 2019 2:08 pm
HEDGEFUNDIE wrote:
Sun Sep 08, 2019 1:14 pm
All this talk about how bad leverage is is making me antsy.

I’ve been back and forth about what to rebalance my EDV gains into. Now I’m confident PSLDX is the right place for that money.

I've been buying both PSLDX and PSPTX in my Roth accounts.
I wish I had enough tax advantaged space to do this. My Roth is 100% Excellent Adventure.

In the meantime, I guess I just need to buy NTSX in taxable and keep bugging my job to add mega backdoors to our 401k

MotoTrojan
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Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by MotoTrojan » Sun Sep 08, 2019 4:42 pm

griffin3141 wrote:
Sun Sep 08, 2019 4:19 pm
rascott wrote:
Sun Sep 08, 2019 2:08 pm
HEDGEFUNDIE wrote:
Sun Sep 08, 2019 1:14 pm
All this talk about how bad leverage is is making me antsy.

I’ve been back and forth about what to rebalance my EDV gains into. Now I’m confident PSLDX is the right place for that money.

I've been buying both PSLDX and PSPTX in my Roth accounts.
I wish I had enough tax advantaged space to do this. My Roth is 100% Excellent Adventure.

In the meantime, I guess I just need to but NTSX in taxable and keep bugging my job to add mega backdoors to our 401k
I really like what I am seeing with NTSX and am hopeful it continues to grow AUM so I can add to it in taxable as well. Backtest is very promising.

HEDGEFUNDIE
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Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by HEDGEFUNDIE » Sun Sep 08, 2019 4:45 pm

Getting back to the point of this thread.

If we remain stuck in a low rate (and low return) environment for the foreseeable future, you will see more and more interest in leveraged strategies, if only for folks to reach the traditional SWRs that Bogleheads have been counting on for years.

As a forum, we can either bury our heads in the sand and pretend this isn’t happening. Or we can do what Bogleheads have always done: provide intellectually defensible analyses of this trend with all the tradeoffs made transparent.

schooner
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Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by schooner » Sun Sep 08, 2019 4:51 pm

HEDGEFUNDIE wrote:
Sun Sep 08, 2019 4:45 pm
Getting back to the point of this thread.

If we remain stuck in a low rate (and low return) environment for the foreseeable future, you will see more and more interest in leveraged strategies, if only for folks to reach the traditional SWRs that Bogleheads have been counting on for years.

As a forum, we can either bury our heads in the sand and pretend this isn’t happening. Or we can do what Bogleheads have always done: provide intellectually defensible analyses of this trend with all the tradeoffs made transparent.
I’m all for open discussion but I think Warren Buffett put it pretty well in his 2010 Annual Letter:

"When leverage works, it magnifies your gains. Your spouse thinks you're clever, and your neighbors get envious. But leverage is addictive. Once having profited from its wonders, very few people retreat to more conservative practices. And as we all learned in third grade — and some relearned in 2008 — any series of positive numbers, however impressive the numbers may be, evaporates when multiplied by a single zero. History tells us that leverage all too often produces zeroes, even when it is employed by very smart people."

rascott
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Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by rascott » Sun Sep 08, 2019 5:00 pm

schooner wrote:
Sun Sep 08, 2019 4:51 pm
HEDGEFUNDIE wrote:
Sun Sep 08, 2019 4:45 pm
Getting back to the point of this thread.

If we remain stuck in a low rate (and low return) environment for the foreseeable future, you will see more and more interest in leveraged strategies, if only for folks to reach the traditional SWRs that Bogleheads have been counting on for years.

As a forum, we can either bury our heads in the sand and pretend this isn’t happening. Or we can do what Bogleheads have always done: provide intellectually defensible analyses of this trend with all the tradeoffs made transparent.
I’m all for open discussion but I think Warren Buffett put it pretty well in his 2010 Annual Letter:

"When leverage works, it magnifies your gains. Your spouse thinks you're clever, and your neighbors get envious. But leverage is addictive. Once having profited from its wonders, very few people retreat to more conservative practices. And as we all learned in third grade — and some relearned in 2008 — any series of positive numbers, however impressive the numbers may be, evaporates when multiplied by a single zero. History tells us that leverage all too often produces zeroes, even when it is employed by very smart people."

I find that ironic from Buffett... considering his entire kingdom was built on the back of leverage via Berkshire's float from his insurance companies.

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Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by TropikThunder » Sun Sep 08, 2019 5:18 pm

rascott wrote:
Sun Sep 08, 2019 5:00 pm
schooner wrote:
Sun Sep 08, 2019 4:51 pm
HEDGEFUNDIE wrote:
Sun Sep 08, 2019 4:45 pm
Getting back to the point of this thread.

If we remain stuck in a low rate (and low return) environment for the foreseeable future, you will see more and more interest in leveraged strategies, if only for folks to reach the traditional SWRs that Bogleheads have been counting on for years.

As a forum, we can either bury our heads in the sand and pretend this isn’t happening. Or we can do what Bogleheads have always done: provide intellectually defensible analyses of this trend with all the tradeoffs made transparent.
I’m all for open discussion but I think Warren Buffett put it pretty well in his 2010 Annual Letter:

"When leverage works, it magnifies your gains. Your spouse thinks you're clever, and your neighbors get envious. But leverage is addictive. Once having profited from its wonders, very few people retreat to more conservative practices. And as we all learned in third grade — and some relearned in 2008 — any series of positive numbers, however impressive the numbers may be, evaporates when multiplied by a single zero. History tells us that leverage all too often produces zeroes, even when it is employed by very smart people."

I find that ironic from Buffett... considering his entire kingdom was built on the back of leverage via Berkshire's float from his insurance companies.
He has more discipline than the little people.

alex_686
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Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by alex_686 » Sun Sep 08, 2019 5:29 pm

rascott wrote:
Sun Sep 08, 2019 5:00 pm
I find that ironic from Buffett... considering his entire kingdom was built on the back of leverage via Berkshire's float from his insurance companies.
And also just straight up leverage. A strong hallmark of his career is to find low volatility companies with high quality earnings, acquire a large stake, and then lever them up.

schooner
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Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by schooner » Sun Sep 08, 2019 5:36 pm

TropikThunder wrote:
Sun Sep 08, 2019 5:18 pm
rascott wrote:
Sun Sep 08, 2019 5:00 pm
schooner wrote:
Sun Sep 08, 2019 4:51 pm
HEDGEFUNDIE wrote:
Sun Sep 08, 2019 4:45 pm
Getting back to the point of this thread.

If we remain stuck in a low rate (and low return) environment for the foreseeable future, you will see more and more interest in leveraged strategies, if only for folks to reach the traditional SWRs that Bogleheads have been counting on for years.

As a forum, we can either bury our heads in the sand and pretend this isn’t happening. Or we can do what Bogleheads have always done: provide intellectually defensible analyses of this trend with all the tradeoffs made transparent.
I’m all for open discussion but I think Warren Buffett put it pretty well in his 2010 Annual Letter:

"When leverage works, it magnifies your gains. Your spouse thinks you're clever, and your neighbors get envious. But leverage is addictive. Once having profited from its wonders, very few people retreat to more conservative practices. And as we all learned in third grade — and some relearned in 2008 — any series of positive numbers, however impressive the numbers may be, evaporates when multiplied by a single zero. History tells us that leverage all too often produces zeroes, even when it is employed by very smart people."

I find that ironic from Buffett... considering his entire kingdom was built on the back of leverage via Berkshire's float from his insurance companies.
He has more discipline than the little people.
Berkshire Hathaway’s leverage has only averaged about 1.6 - mostly through internal (and interest free) float. Plus, they’re sitting on a pile of cash right now.

It’s not just the little guys. Dick Fuld of Lehman Brothers learned the hard way what happens when your luck runs out and you multiply by zero.

rascott
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Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by rascott » Sun Sep 08, 2019 5:44 pm

schooner wrote:
Sun Sep 08, 2019 5:36 pm
TropikThunder wrote:
Sun Sep 08, 2019 5:18 pm
rascott wrote:
Sun Sep 08, 2019 5:00 pm
schooner wrote:
Sun Sep 08, 2019 4:51 pm
HEDGEFUNDIE wrote:
Sun Sep 08, 2019 4:45 pm
Getting back to the point of this thread.

If we remain stuck in a low rate (and low return) environment for the foreseeable future, you will see more and more interest in leveraged strategies, if only for folks to reach the traditional SWRs that Bogleheads have been counting on for years.

As a forum, we can either bury our heads in the sand and pretend this isn’t happening. Or we can do what Bogleheads have always done: provide intellectually defensible analyses of this trend with all the tradeoffs made transparent.
I’m all for open discussion but I think Warren Buffett put it pretty well in his 2010 Annual Letter:

"When leverage works, it magnifies your gains. Your spouse thinks you're clever, and your neighbors get envious. But leverage is addictive. Once having profited from its wonders, very few people retreat to more conservative practices. And as we all learned in third grade — and some relearned in 2008 — any series of positive numbers, however impressive the numbers may be, evaporates when multiplied by a single zero. History tells us that leverage all too often produces zeroes, even when it is employed by very smart people."

I find that ironic from Buffett... considering his entire kingdom was built on the back of leverage via Berkshire's float from his insurance companies.
He has more discipline than the little people.
Berkshire Hathaway’s leverage has only averaged about 1.6 - mostly through internal (and interest free) float. Plus, they’re sitting on a pile of cash right now.

It’s not just the little guys. Dick Fuld of Lehman Brothers learned the hard way what happens when your luck runs out and you multiply by zero.
Lehman was leveraged something like 30 to 1.... and using sub-prime mortgages to boot. Don't think it would even be possible for an individual to pull that off, if they wanted to

Ironically 1.6 is likely about the "ideal" leverage for an equity index fund holder..... if you want to max out gains without going bust.

schooner
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Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by schooner » Sun Sep 08, 2019 5:53 pm

rascott wrote:
Sun Sep 08, 2019 5:44 pm
schooner wrote:
Sun Sep 08, 2019 5:36 pm
TropikThunder wrote:
Sun Sep 08, 2019 5:18 pm
rascott wrote:
Sun Sep 08, 2019 5:00 pm
schooner wrote:
Sun Sep 08, 2019 4:51 pm


I’m all for open discussion but I think Warren Buffett put it pretty well in his 2010 Annual Letter:

"When leverage works, it magnifies your gains. Your spouse thinks you're clever, and your neighbors get envious. But leverage is addictive. Once having profited from its wonders, very few people retreat to more conservative practices. And as we all learned in third grade — and some relearned in 2008 — any series of positive numbers, however impressive the numbers may be, evaporates when multiplied by a single zero. History tells us that leverage all too often produces zeroes, even when it is employed by very smart people."

I find that ironic from Buffett... considering his entire kingdom was built on the back of leverage via Berkshire's float from his insurance companies.
He has more discipline than the little people.
Berkshire Hathaway’s leverage has only averaged about 1.6 - mostly through internal (and interest free) float. Plus, they’re sitting on a pile of cash right now.

It’s not just the little guys. Dick Fuld of Lehman Brothers learned the hard way what happens when your luck runs out and you multiply by zero.
Lehman was leveraged something like 30 to 1.... and using sub-prime mortgages to boot. Don't think it would even be possible for an individual to pull that off, if they wanted to

Ironically 1.6 is likely about the "ideal" leverage for an equity index fund holder..... if you want to max out gains without going bust.
Do you have the source for 1.6 as the ideal? Certainly nowhere near 2x or 3X ETFs. Not sure you can make a blanket statement without factoring in margin rates and margin call policies.

Plus, the problem is not just a wipe out on a single day but the decay over time:

https://www.kiplinger.com/article/inves ... -etfs.html

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Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by firebirdparts » Sun Sep 08, 2019 6:41 pm

rascott wrote:
Sun Sep 08, 2019 5:00 pm

I find that ironic from Buffett... considering his entire kingdom was built on the back of leverage via Berkshire's float from his insurance companies.
He's not stupid. Margin, the old fashioned kind, is a great way to get to zero. It's harder to do with diversified investments, but you can now compensate for that through higher leverage. Ignorance of danger is no virtue.
A fool and your money are soon partners

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Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by vineviz » Sun Sep 08, 2019 7:03 pm

schooner wrote:
Sun Sep 08, 2019 5:53 pm
Do you have the source for 1.6 as the ideal? Certainly nowhere near 2x or 3X ETFs. Not sure you can make a blanket statement without factoring in margin rates and margin call policies.
Leveraged ETFs don't use margin and aren't subject to margin call.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

schooner
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Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by schooner » Sun Sep 08, 2019 7:16 pm

vineviz wrote:
Sun Sep 08, 2019 7:03 pm
schooner wrote:
Sun Sep 08, 2019 5:53 pm
Do you have the source for 1.6 as the ideal? Certainly nowhere near 2x or 3X ETFs. Not sure you can make a blanket statement without factoring in margin rates and margin call policies.
Leveraged ETFs don't use margin and aren't subject to margin call.
I was referring to the 1.6 leverage claim not the ETF structure.

Leverage ETFs use derivatives but similar issues apply. Just ask Bear Sterns and Lehman Brothers how it worked out for them

Naris
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Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by Naris » Sun Sep 08, 2019 7:20 pm

samsdad wrote:
Sun Sep 08, 2019 12:14 pm
jh wrote:
Sat Sep 07, 2019 9:46 pm
Its insulting to me when someone I don't even know wants to prevent me from having access to information. The assumption is that I am not smart enough or mature enough to have access to it. Its extremely arrogant for someone to decide on their own what strangers can/should be able to read about.
I honestly couldn't agree more.
Seconded. I don't personally use "leveraged ETFs" or other forms of leveraged investments (other than investing while having a mortgage . . . and student loans . . . and utilizing 0% intro APR credit cards . . .), but I have tremendously enjoyed reading the various discussions regarding portfolios that include leverage as one aspect within them, and I appreciate the time and effort that people have spent researching and explaining these types of strategies. I certainly feel that I am more informed for having read these discussions, and I'm glad that the moderators don't take some sort of absolutist "leveraged ETFs are too bad to even discuss" approach to the topic.

BogleBobby
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Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by BogleBobby » Sun Sep 08, 2019 7:25 pm

schooner wrote:
Sun Sep 08, 2019 7:16 pm
Leverage ETFs use derivatives but similar issues apply. Just ask Bear Sterns and Lehman Brothers how it worked out for them
SSO was around in 2007/2008 and survived. UPRO would've also been fine because leverage is reset daily.

rascott
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Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by rascott » Sun Sep 08, 2019 7:43 pm

schooner wrote:
Sun Sep 08, 2019 5:53 pm
rascott wrote:
Sun Sep 08, 2019 5:44 pm
schooner wrote:
Sun Sep 08, 2019 5:36 pm
TropikThunder wrote:
Sun Sep 08, 2019 5:18 pm
rascott wrote:
Sun Sep 08, 2019 5:00 pm



I find that ironic from Buffett... considering his entire kingdom was built on the back of leverage via Berkshire's float from his insurance companies.
He has more discipline than the little people.
Berkshire Hathaway’s leverage has only averaged about 1.6 - mostly through internal (and interest free) float. Plus, they’re sitting on a pile of cash right now.

It’s not just the little guys. Dick Fuld of Lehman Brothers learned the hard way what happens when your luck runs out and you multiply by zero.
Lehman was leveraged something like 30 to 1.... and using sub-prime mortgages to boot. Don't think it would even be possible for an individual to pull that off, if they wanted to

Ironically 1.6 is likely about the "ideal" leverage for an equity index fund holder..... if you want to max out gains without going bust.
Do you have the source for 1.6 as the ideal? Certainly nowhere near 2x or 3X ETFs. Not sure you can make a blanket statement without factoring in margin rates and margin call policies.

Plus, the problem is not just a wipe out on a single day but the decay over time:

https://www.kiplinger.com/article/inves ... -etfs.html

I've read quite a few studies this year on leverage.... and that's the ballpark "ideal" (or I should say, what was ideal looking at the past) .... in that's its likely to survive most any market and still not put you in such a hole you wouldn't recover and not greatly beat out an non- leveraged portfolio.. obviously truly even 2x could take you to zero with a 50%+ drawdown (if you were using straight futures/ margin).

That's all theoretical.... other than one poster, I don't know anyone leveraging their entire portfolio. I surely don't have the stones for that (however, looking back...I certainly wish I had when I was younger and just starting out).


The leveraged ETFs work differently, as is commonly mentioned, like in your article.... with the daily reset. So even a 3x can't really go to 0.... but can get close. I think UPRO would have had a 95+% drawdown in 2008.

While that's constantly pointed out as a negative.... in practice it doesn't have to be. In a bear market, it will actually go down less than 3x... in a bull it will go up much more than 3x. (I'm only talking equity index funds). The flat market with a lot of swings up/ down and returning to the same point is where the "decay" comes in. You'll do worse there than just holding the index.

See here....UPRO is up much more than 3x the SP500 during the bull market. As it keeps compounding. TQQQ has blown the roof off. So these have no had decay, they've had just the opposite. TMF has had decay, and why some have started looking at EDV for their treasury bond "insurance" in these portfolios.

https://seekingalpha.com/article/424406 ... raged-etfs

Also, nobody should be arguing to make a single LETF your whole portfolio. That would be suicidal. But perhaps someone is young with limited capital and wants 120% equity exposure.....90% VTI/10% UPRO.... with rebalancing could provide that and it's not going to blow up in your face.

guyinlaw
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Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by guyinlaw » Sun Sep 08, 2019 8:05 pm

So far NTSX, WisdomTree 90/60 U.S. Balanced Fund (50% leverage) seems pretty good, I haven't seen any concerns. I understand the AUM is small and it is relatively new fund. The expense ratio of 0.2% is not high.

https://www.wisdomtree.com/etfs/asset-allocation/ntsx

It performed pretty well since inception (2018) and during the Dec 2018 drop.

Please see the backtest for simulated NTSX portfolio vs S&P500 80-20 vs S&P500 since 1992.
schismal wrote:
Wed Sep 04, 2019 5:04 am

PV LINK

P1: Simulated NTSX (75/25 intermediate/long split, average duration of 8-9 years)
P2: 80/20 S&P 500 and long treasuries
P3: 100% S&P 500

Image
See earlier discussion
viewtopic.php?f=10&t=256020&start=250

schooner
Posts: 294
Joined: Sun Jun 09, 2019 8:27 am

Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by schooner » Sun Sep 08, 2019 8:08 pm

rascott wrote:
Sun Sep 08, 2019 7:43 pm
schooner wrote:
Sun Sep 08, 2019 5:53 pm
rascott wrote:
Sun Sep 08, 2019 5:44 pm
schooner wrote:
Sun Sep 08, 2019 5:36 pm
TropikThunder wrote:
Sun Sep 08, 2019 5:18 pm

He has more discipline than the little people.
Berkshire Hathaway’s leverage has only averaged about 1.6 - mostly through internal (and interest free) float. Plus, they’re sitting on a pile of cash right now.

It’s not just the little guys. Dick Fuld of Lehman Brothers learned the hard way what happens when your luck runs out and you multiply by zero.
Lehman was leveraged something like 30 to 1.... and using sub-prime mortgages to boot. Don't think it would even be possible for an individual to pull that off, if they wanted to

Ironically 1.6 is likely about the "ideal" leverage for an equity index fund holder..... if you want to max out gains without going bust.
Do you have the source for 1.6 as the ideal? Certainly nowhere near 2x or 3X ETFs. Not sure you can make a blanket statement without factoring in margin rates and margin call policies.

Plus, the problem is not just a wipe out on a single day but the decay over time:

https://www.kiplinger.com/article/inves ... -etfs.html

I've read quite a few studies this year on leverage.... and that's the ballpark "ideal" (or I should say, what was ideal looking at the past) .... in that's its likely to survive most any market and still not put you in such a hole you wouldn't recover and not greatly beat out an non- leveraged portfolio.. obviously truly even 2x could take you to zero with a 50%+ drawdown (if you were using straight futures/ margin).



The leveraged ETFs work differently, as is commonly mentioned, like in your article.... with the daily reset. So even a 3x can't really go to 0.... but can get close. I think UPRO would have had a 95+% drawdown in 2008.

While that's constantly pointed out as a negative.... in practice it doesn't have to be. In a bear market, it will actually go down less than 3x... in a bull it will go up much more than 3x. (I'm only talking equity index funds). The flat market with a lot of swings up/ down and returning to the same point is where the "decay" comes in. You'll do worse there than just holding the index.

See here....UPRO is up much more than 3x the SP500 during the bull market. As it keeps compounding.

https://seekingalpha.com/article/424406 ... raged-etfs

Also, nobody should be arguing to make a single LETF your whole portfolio. That would be suicidal. But perhaps someone is young with limited capital and wants 120% equity exposure.....90% VTI/10% UPRO.... with rebalancing could provide that and it's not going to blow up in your face.
10% in UPRO is fine by me. Just play money.

But as you’ve pointed out, it’s not going to give you the same return as 120% equity exposure. It may give you more through compounding or (probably less) through decay - the stock market is a volatile place!

You’d have to borrow on margin to actually get 120% equity exposure. But then you have to pay interest and are subject to margin calls.

rascott
Posts: 1089
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Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by rascott » Sun Sep 08, 2019 8:32 pm

schooner wrote:
Sun Sep 08, 2019 8:08 pm
rascott wrote:
Sun Sep 08, 2019 7:43 pm
schooner wrote:
Sun Sep 08, 2019 5:53 pm
rascott wrote:
Sun Sep 08, 2019 5:44 pm
schooner wrote:
Sun Sep 08, 2019 5:36 pm


Berkshire Hathaway’s leverage has only averaged about 1.6 - mostly through internal (and interest free) float. Plus, they’re sitting on a pile of cash right now.

It’s not just the little guys. Dick Fuld of Lehman Brothers learned the hard way what happens when your luck runs out and you multiply by zero.
Lehman was leveraged something like 30 to 1.... and using sub-prime mortgages to boot. Don't think it would even be possible for an individual to pull that off, if they wanted to

Ironically 1.6 is likely about the "ideal" leverage for an equity index fund holder..... if you want to max out gains without going bust.
Do you have the source for 1.6 as the ideal? Certainly nowhere near 2x or 3X ETFs. Not sure you can make a blanket statement without factoring in margin rates and margin call policies.

Plus, the problem is not just a wipe out on a single day but the decay over time:

https://www.kiplinger.com/article/inves ... -etfs.html

I've read quite a few studies this year on leverage.... and that's the ballpark "ideal" (or I should say, what was ideal looking at the past) .... in that's its likely to survive most any market and still not put you in such a hole you wouldn't recover and not greatly beat out an non- leveraged portfolio.. obviously truly even 2x could take you to zero with a 50%+ drawdown (if you were using straight futures/ margin).



The leveraged ETFs work differently, as is commonly mentioned, like in your article.... with the daily reset. So even a 3x can't really go to 0.... but can get close. I think UPRO would have had a 95+% drawdown in 2008.

While that's constantly pointed out as a negative.... in practice it doesn't have to be. In a bear market, it will actually go down less than 3x... in a bull it will go up much more than 3x. (I'm only talking equity index funds). The flat market with a lot of swings up/ down and returning to the same point is where the "decay" comes in. You'll do worse there than just holding the index.

See here....UPRO is up much more than 3x the SP500 during the bull market. As it keeps compounding.

https://seekingalpha.com/article/424406 ... raged-etfs

Also, nobody should be arguing to make a single LETF your whole portfolio. That would be suicidal. But perhaps someone is young with limited capital and wants 120% equity exposure.....90% VTI/10% UPRO.... with rebalancing could provide that and it's not going to blow up in your face.
10% in UPRO is fine by me. Just play money.

But as you’ve pointed out, it’s not going to give you the same return as 120% equity exposure. It may give you more through compounding or (probably less) through decay - the stock market is a volatile place!

You’d have to borrow on margin to actually get 120% equity exposure. But then you have to pay interest and are subject to margin calls.
All true....I do find the LETFs an interesting product that could make a more optimal portfolio for someone. Or be used as a side play to shoot for the moon. Doing your own futures contracts is probably the most ideal way to do leverage, but this requires a much more sophisticated investor to eliminate the distinct issue of user- error.

EddyB
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Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by EddyB » Sun Sep 08, 2019 8:49 pm

JoMoney wrote:
Sun Sep 08, 2019 10:25 am
HEDGEFUNDIE wrote:
Sun Sep 08, 2019 10:18 am
...
The theoretical principles behind why a leveraged stock/bond combination works as a long term holding are the same as the principles that underpin the “suitability” of any regular stock/bond AA. In both cases, you rely on two assets that do not move together to take you through both the good times and the bad.

PSLDX has been found “suitable” enough to be allowed into 401k menus.
Neither PSLDX nor "theoretical principles of leveraged stock/bond combinations" suggest using Leveraged ETF's as a long-term holding, and I don't see the relevance to my point. Specifically, that it's irresponsible to suggest using leveraged ETFs as a long-term holding and expecting it to work like other forms of leverage.
Your point doesn’t seem to me to encompass that “paired” aspect of the Hedgefundie-initiated discussions. Is your “points aimed st then, or at some other use of these products?

Hydromod
Posts: 258
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Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by Hydromod » Tue Sep 10, 2019 9:41 am

Tyler Aspect wrote:
Sat Sep 07, 2019 8:38 pm
[Title was "Leveraged ETF messages" --admin LadyGeek]

Recently there are many messages posting about the use of 3X leveraged ETFs. They are no longer limited to few theory threads, but can be found in messages asking for portfolio suggestions. Speculative investments such as 3X leveraged ETFs are not suitable for responsible long term investments, but there are no forum policy stating how leveraged ETF postings should be seen.

It is not my role for every instance of such postings to submit a counter "it is dangerous" message. But this could be a tough issue no matter if one stays silent or engage in arguments.

Has this issue being raised to the moderation team before?
I must admit that I vacillate between amused and appalled by how the concern over leveraged products has caused folks to interject the same doom-filled arguments into every thread remotely related to leverage. I imagine similar sentiments were raised when horseless carriages were introduced.

In essence, the argument is that under no circumstances should one invest in a fund that has a probability of going to zero, even though in the long run it offers the prospect of good returns on the investment.

Individual stocks can also go to zero, even though they offer the prospect of returns on the investment.

According to the logic, then we should never invest in such a risky thing. And yet I find that the overall recommendation from this site is to hold most of one's portfolio in stocks for most of one's lifetime.

How do we handle the risk of holding individual stocks? We aggregate them and diversify. We still have risk, but now it is reduced.

This is exactly the approach that folks on this site are advising to handle the additional risks and rewards involved with leveraged ETFs. Use index funds, balance the risks, limit them to a small part of your portfolio, diversify. Just the same arguments that one uses with risky funds like emerging markets and small cap value.

As I see it, in the relatively limited time I've had on this site, the boglehead way is to teach folks how to responsibly invest in the face of risk. That is why the boglehead recommendation has been to use index funds rather than individual stocks, and to diversify with low-correlation assets.

I see no way that leveraged ETFs are going back in the box, now that they are available. People have begun actively using these new investing opportunities and they will not stop. The potential rewards have been demonstrated.

So what is the responsibility of those in the boglehead community that see these instruments as risky?

Figure out how the horseless carriage can be used most responsibly, and help people towards that goal. I think that banning discussion of the horseless carriage will simply drive folks to other venues, where the boglehead virtues may not be so prominent.

Bless your heart, there is value in being aware of the dangers, and I have respect for those that act on their convictions. But we have all thoroughly gotten it now.

I just don't see that going out of one's way over and over again to repeat the argument that the horseless carriage is risky has much hope of promoting responsible behavior in those that are determined to drive. Instead, please help us figure out safer driving habits with the horseless carriage in the garage that we already have.

Please.

schooner
Posts: 294
Joined: Sun Jun 09, 2019 8:27 am

Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by schooner » Tue Sep 10, 2019 10:12 am

Hydromod wrote:
Tue Sep 10, 2019 9:41 am
Tyler Aspect wrote:
Sat Sep 07, 2019 8:38 pm
[Title was "Leveraged ETF messages" --admin LadyGeek]

Recently there are many messages posting about the use of 3X leveraged ETFs. They are no longer limited to few theory threads, but can be found in messages asking for portfolio suggestions. Speculative investments such as 3X leveraged ETFs are not suitable for responsible long term investments, but there are no forum policy stating how leveraged ETF postings should be seen.

It is not my role for every instance of such postings to submit a counter "it is dangerous" message. But this could be a tough issue no matter if one stays silent or engage in arguments.

Has this issue being raised to the moderation team before?
I must admit that I vacillate between amused and appalled by how the concern over leveraged products has caused folks to interject the same doom-filled arguments into every thread remotely related to leverage. I imagine similar sentiments were raised when horseless carriages were introduced.

In essence, the argument is that under no circumstances should one invest in a fund that has a probability of going to zero, even though in the long run it offers the prospect of good returns on the investment.

Individual stocks can also go to zero, even though they offer the prospect of returns on the investment.

According to the logic, then we should never invest in such a risky thing. And yet I find that the overall recommendation from this site is to hold most of one's portfolio in stocks for most of one's lifetime.

How do we handle the risk of holding individual stocks? We aggregate them and diversify. We still have risk, but now it is reduced.

This is exactly the approach that folks on this site are advising to handle the additional risks and rewards involved with leveraged ETFs. Use index funds, balance the risks, limit them to a small part of your portfolio, diversify. Just the same arguments that one uses with risky funds like emerging markets and small cap value.

As I see it, in the relatively limited time I've had on this site, the boglehead way is to teach folks how to responsibly invest in the face of risk. That is why the boglehead recommendation has been to use index funds rather than individual stocks, and to diversify with low-correlation assets.

I see no way that leveraged ETFs are going back in the box, now that they are available. People have begun actively using these new investing opportunities and they will not stop. The potential rewards have been demonstrated.

So what is the responsibility of those in the boglehead community that see these instruments as risky?

Figure out how the horseless carriage can be used most responsibly, and help people towards that goal. I think that banning discussion of the horseless carriage will simply drive folks to other venues, where the boglehead virtues may not be so prominent.

Bless your heart, there is value in being aware of the dangers, and I have respect for those that act on their convictions. But we have all thoroughly gotten it now.

I just don't see that going out of one's way over and over again to repeat the argument that the horseless carriage is risky has much hope of promoting responsible behavior in those that are determined to drive. Instead, please help us figure out safer driving habits with the horseless carriage in the garage that we already have.

Please.
If you really believe this: “in the long run it offers the prospect of good returns on the investment.”

Despite literally every authority, including the funds’ own prospectus!

We’ll just have to agree to disagree.

Heck, the average market return has been 7% annually. And if you get 3X, that’s 21%.

$100k compounded over 50 years would turn into $1.3 billion.

So I’ll look forward to seeing a lot of leveraged ETF folks on the Forbe’s list of wealthiest Americans in the decades to come

Then I’ll admit the leveraged ETF is like the invention of the automobile :beer

HEDGEFUNDIE
Posts: 3660
Joined: Sun Oct 22, 2017 2:06 pm

Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by HEDGEFUNDIE » Tue Sep 10, 2019 10:23 am

schooner wrote:
Tue Sep 10, 2019 10:12 am
Heck, the average market return has been 7% annually. And if you get 3X, that’s 21%.

$100k compounded over 50 years would turn into $1.3 billion.

So I’ll look forward to seeing a lot of leveraged ETF folks on the Forbe’s list of wealthiest Americans in the decades to come

Then I’ll admit the leveraged ETF is like the invention of the automobile :beer
Check back in 20 years.

schooner
Posts: 294
Joined: Sun Jun 09, 2019 8:27 am

Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by schooner » Tue Sep 10, 2019 10:26 am

HEDGEFUNDIE wrote:
Tue Sep 10, 2019 10:23 am
schooner wrote:
Tue Sep 10, 2019 10:12 am
Heck, the average market return has been 7% annually. And if you get 3X, that’s 21%.

$100k compounded over 50 years would turn into $1.3 billion.

So I’ll look forward to seeing a lot of leveraged ETF folks on the Forbe’s list of wealthiest Americans in the decades to come

Then I’ll admit the leveraged ETF is like the invention of the automobile :beer
Check back in 20 years.
Bookmarked ;-)

HEDGEFUNDIE
Posts: 3660
Joined: Sun Oct 22, 2017 2:06 pm

Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by HEDGEFUNDIE » Tue Sep 10, 2019 10:28 am

schooner wrote:
Tue Sep 10, 2019 10:26 am
HEDGEFUNDIE wrote:
Tue Sep 10, 2019 10:23 am
schooner wrote:
Tue Sep 10, 2019 10:12 am
Heck, the average market return has been 7% annually. And if you get 3X, that’s 21%.

$100k compounded over 50 years would turn into $1.3 billion.

So I’ll look forward to seeing a lot of leveraged ETF folks on the Forbe’s list of wealthiest Americans in the decades to come

Then I’ll admit the leveraged ETF is like the invention of the automobile :beer
Check back in 20 years.
Bookmarked ;-)
Just out of curiosity, if my strategy did maintain 20%+ CAGRs for the next 20 years, would you call me vindicated or lucky?

User avatar
willthrill81
Posts: 13960
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Location: USA

Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by willthrill81 » Tue Sep 10, 2019 10:35 am

HEDGEFUNDIE wrote:
Tue Sep 10, 2019 10:28 am
schooner wrote:
Tue Sep 10, 2019 10:26 am
HEDGEFUNDIE wrote:
Tue Sep 10, 2019 10:23 am
schooner wrote:
Tue Sep 10, 2019 10:12 am
Heck, the average market return has been 7% annually. And if you get 3X, that’s 21%.

$100k compounded over 50 years would turn into $1.3 billion.

So I’ll look forward to seeing a lot of leveraged ETF folks on the Forbe’s list of wealthiest Americans in the decades to come

Then I’ll admit the leveraged ETF is like the invention of the automobile :beer
Check back in 20 years.
Bookmarked ;-)
Just out of curiosity, if my strategy did maintain 20%+ CAGRs for the next 20 years, would you call me vindicated or lucky?
To be honest, it would be impossible to say.

That being said, I've adopted a version of your strategy with a small portion of my portfolio.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

schooner
Posts: 294
Joined: Sun Jun 09, 2019 8:27 am

Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by schooner » Tue Sep 10, 2019 10:43 am

HEDGEFUNDIE wrote:
Tue Sep 10, 2019 10:28 am
schooner wrote:
Tue Sep 10, 2019 10:26 am
HEDGEFUNDIE wrote:
Tue Sep 10, 2019 10:23 am
schooner wrote:
Tue Sep 10, 2019 10:12 am
Heck, the average market return has been 7% annually. And if you get 3X, that’s 21%.

$100k compounded over 50 years would turn into $1.3 billion.

So I’ll look forward to seeing a lot of leveraged ETF folks on the Forbe’s list of wealthiest Americans in the decades to come

Then I’ll admit the leveraged ETF is like the invention of the automobile :beer
Check back in 20 years.
Bookmarked ;-)
Just out of curiosity, if my strategy did maintain 20%+ CAGRs for the next 20 years, would you call me vindicated or lucky?
I’d consider you vindicated. Your $100k would turn into at least $3.8 million. And if you added money along the way, much more than that. Not sure you’d care about my vindication at that point but feel free to bookmark that :-)

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PoeticalDeportment
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Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by PoeticalDeportment » Tue Sep 10, 2019 10:52 am

HEDGEFUNDIE wrote:
Sun Sep 08, 2019 1:14 pm
All this talk about how bad leverage is is making me antsy.

I’ve been back and forth about what to rebalance my EDV gains into.
The only question about rebalancing is when to do it. (Stick to your predetermined asset allocation)

If you are wondering which assets to buy and which to sell - that is called something else.

MotoTrojan
Posts: 6879
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Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by MotoTrojan » Tue Sep 10, 2019 10:52 am

schooner wrote:
Tue Sep 10, 2019 10:12 am
Hydromod wrote:
Tue Sep 10, 2019 9:41 am
Tyler Aspect wrote:
Sat Sep 07, 2019 8:38 pm
[Title was "Leveraged ETF messages" --admin LadyGeek]

Recently there are many messages posting about the use of 3X leveraged ETFs. They are no longer limited to few theory threads, but can be found in messages asking for portfolio suggestions. Speculative investments such as 3X leveraged ETFs are not suitable for responsible long term investments, but there are no forum policy stating how leveraged ETF postings should be seen.

It is not my role for every instance of such postings to submit a counter "it is dangerous" message. But this could be a tough issue no matter if one stays silent or engage in arguments.

Has this issue being raised to the moderation team before?
I must admit that I vacillate between amused and appalled by how the concern over leveraged products has caused folks to interject the same doom-filled arguments into every thread remotely related to leverage. I imagine similar sentiments were raised when horseless carriages were introduced.

In essence, the argument is that under no circumstances should one invest in a fund that has a probability of going to zero, even though in the long run it offers the prospect of good returns on the investment.

Individual stocks can also go to zero, even though they offer the prospect of returns on the investment.

According to the logic, then we should never invest in such a risky thing. And yet I find that the overall recommendation from this site is to hold most of one's portfolio in stocks for most of one's lifetime.

How do we handle the risk of holding individual stocks? We aggregate them and diversify. We still have risk, but now it is reduced.

This is exactly the approach that folks on this site are advising to handle the additional risks and rewards involved with leveraged ETFs. Use index funds, balance the risks, limit them to a small part of your portfolio, diversify. Just the same arguments that one uses with risky funds like emerging markets and small cap value.

As I see it, in the relatively limited time I've had on this site, the boglehead way is to teach folks how to responsibly invest in the face of risk. That is why the boglehead recommendation has been to use index funds rather than individual stocks, and to diversify with low-correlation assets.

I see no way that leveraged ETFs are going back in the box, now that they are available. People have begun actively using these new investing opportunities and they will not stop. The potential rewards have been demonstrated.

So what is the responsibility of those in the boglehead community that see these instruments as risky?

Figure out how the horseless carriage can be used most responsibly, and help people towards that goal. I think that banning discussion of the horseless carriage will simply drive folks to other venues, where the boglehead virtues may not be so prominent.

Bless your heart, there is value in being aware of the dangers, and I have respect for those that act on their convictions. But we have all thoroughly gotten it now.

I just don't see that going out of one's way over and over again to repeat the argument that the horseless carriage is risky has much hope of promoting responsible behavior in those that are determined to drive. Instead, please help us figure out safer driving habits with the horseless carriage in the garage that we already have.

Please.
If you really believe this: “in the long run it offers the prospect of good returns on the investment.”

Despite literally every authority, including the funds’ own prospectus!

We’ll just have to agree to disagree.

Heck, the average market return has been 7% annually. And if you get 3X, that’s 21%.

$100k compounded over 50 years would turn into $1.3 billion.

So I’ll look forward to seeing a lot of leveraged ETF folks on the Forbe’s list of wealthiest Americans in the decades to come

Then I’ll admit the leveraged ETF is like the invention of the automobile :beer
Nobody is suggesting holding them alone. You are not listening.

User avatar
305pelusa
Posts: 1011
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Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by 305pelusa » Tue Sep 10, 2019 11:10 am

HEDGEFUNDIE wrote:
Tue Sep 10, 2019 10:28 am
schooner wrote:
Tue Sep 10, 2019 10:26 am
HEDGEFUNDIE wrote:
Tue Sep 10, 2019 10:23 am
schooner wrote:
Tue Sep 10, 2019 10:12 am
Heck, the average market return has been 7% annually. And if you get 3X, that’s 21%.

$100k compounded over 50 years would turn into $1.3 billion.

So I’ll look forward to seeing a lot of leveraged ETF folks on the Forbe’s list of wealthiest Americans in the decades to come

Then I’ll admit the leveraged ETF is like the invention of the automobile :beer
Check back in 20 years.
Bookmarked ;-)
Just out of curiosity, if my strategy did maintain 20%+ CAGRs for the next 20 years, would you call me vindicated or lucky?
I'd ask you the same as well: If it achieved terrible results, lagging that of a simple portfolio of index stock funds, would you say you were unlucky or would you agree it was a terrible idea?

KyleAAA
Posts: 7598
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Contact:

Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by KyleAAA » Tue Sep 10, 2019 12:09 pm

305pelusa wrote:
Tue Sep 10, 2019 11:10 am
HEDGEFUNDIE wrote:
Tue Sep 10, 2019 10:28 am
schooner wrote:
Tue Sep 10, 2019 10:26 am
HEDGEFUNDIE wrote:
Tue Sep 10, 2019 10:23 am
schooner wrote:
Tue Sep 10, 2019 10:12 am
Heck, the average market return has been 7% annually. And if you get 3X, that’s 21%.

$100k compounded over 50 years would turn into $1.3 billion.

So I’ll look forward to seeing a lot of leveraged ETF folks on the Forbe’s list of wealthiest Americans in the decades to come

Then I’ll admit the leveraged ETF is like the invention of the automobile :beer
Check back in 20 years.
Bookmarked ;-)
Just out of curiosity, if my strategy did maintain 20%+ CAGRs for the next 20 years, would you call me vindicated or lucky?
I'd ask you the same as well: If it achieved terrible results, lagging that of a simple portfolio of index stock funds, would you say you were unlucky or would you agree it was a terrible idea?
The answer, of course, is neither. Just because a particular implementation of an idea is successful or not over a specific time period doesn't necessarily invalidate the idea itself. Maybe the leveraged ETFs turn out to be a poor vehicle for practical reasons, but another slightly different application of leverage is wildly successful. And I mostly see people advocating leverage in service of a form of risk parity approach, so they wouldn't JUST be holding 3x leverage ETFs and wouldn't expect to see 20% annual returns.

MotoTrojan
Posts: 6879
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Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by MotoTrojan » Tue Sep 10, 2019 12:22 pm

KyleAAA wrote:
Tue Sep 10, 2019 12:09 pm
305pelusa wrote:
Tue Sep 10, 2019 11:10 am
HEDGEFUNDIE wrote:
Tue Sep 10, 2019 10:28 am
schooner wrote:
Tue Sep 10, 2019 10:26 am
HEDGEFUNDIE wrote:
Tue Sep 10, 2019 10:23 am


Check back in 20 years.
Bookmarked ;-)
Just out of curiosity, if my strategy did maintain 20%+ CAGRs for the next 20 years, would you call me vindicated or lucky?
I'd ask you the same as well: If it achieved terrible results, lagging that of a simple portfolio of index stock funds, would you say you were unlucky or would you agree it was a terrible idea?
The answer, of course, is neither. Just because a particular implementation of an idea is successful or not over a specific time period doesn't necessarily invalidate the idea itself. Maybe the leveraged ETFs turn out to be a poor vehicle for practical reasons, but another slightly different application of leverage is wildly successful. And I mostly see people advocating leverage in service of a form of risk parity approach, so they wouldn't JUST be holding 3x leverage ETFs and wouldn't expect to see 20% annual returns.
I would be thrilled to get 1-2% CAGR above the unleveraged S&P500 with my 43/57 UPRO/EDV variant, which was how it (out)performed from 1955-2018; I am not banking on 20% annual returns.

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Phineas J. Whoopee
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Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by Phineas J. Whoopee » Tue Sep 10, 2019 12:52 pm

Expressing a negative view of an investment product to be used over a longer period than one day, while including references, is not censoring discussion.
PJW

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305pelusa
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Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by 305pelusa » Tue Sep 10, 2019 1:20 pm

KyleAAA wrote:
Tue Sep 10, 2019 12:09 pm
305pelusa wrote:
Tue Sep 10, 2019 11:10 am
HEDGEFUNDIE wrote:
Tue Sep 10, 2019 10:28 am
schooner wrote:
Tue Sep 10, 2019 10:26 am
HEDGEFUNDIE wrote:
Tue Sep 10, 2019 10:23 am


Check back in 20 years.
Bookmarked ;-)
Just out of curiosity, if my strategy did maintain 20%+ CAGRs for the next 20 years, would you call me vindicated or lucky?
I'd ask you the same as well: If it achieved terrible results, lagging that of a simple portfolio of index stock funds, would you say you were unlucky or would you agree it was a terrible idea?
The answer, of course, is neither. Just because a particular implementation of an idea is successful or not over a specific time period doesn't necessarily invalidate the idea itself. Maybe the leveraged ETFs turn out to be a poor vehicle for practical reasons, but another slightly different application of leverage is wildly successful. And I mostly see people advocating leverage in service of a form of risk parity approach, so they wouldn't JUST be holding 3x leverage ETFs and wouldn't expect to see 20% annual returns.
That's exactly my point. Saying someone is vindicated because they get absurdly good results is as unfair as saying they were totally wrong just because they get terrible results :sharebeer :sharebeer

HEDGEFUNDIE
Posts: 3660
Joined: Sun Oct 22, 2017 2:06 pm

Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by HEDGEFUNDIE » Tue Sep 10, 2019 1:37 pm

305pelusa wrote:
Tue Sep 10, 2019 11:10 am
HEDGEFUNDIE wrote:
Tue Sep 10, 2019 10:28 am
schooner wrote:
Tue Sep 10, 2019 10:26 am
HEDGEFUNDIE wrote:
Tue Sep 10, 2019 10:23 am
schooner wrote:
Tue Sep 10, 2019 10:12 am
Heck, the average market return has been 7% annually. And if you get 3X, that’s 21%.

$100k compounded over 50 years would turn into $1.3 billion.

So I’ll look forward to seeing a lot of leveraged ETF folks on the Forbe’s list of wealthiest Americans in the decades to come

Then I’ll admit the leveraged ETF is like the invention of the automobile :beer
Check back in 20 years.
Bookmarked ;-)
Just out of curiosity, if my strategy did maintain 20%+ CAGRs for the next 20 years, would you call me vindicated or lucky?
I'd ask you the same as well: If it achieved terrible results, lagging that of a simple portfolio of index stock funds, would you say you were unlucky or would you agree it was a terrible idea?
20 years is enough time to tell. I’d admit to being wrong at that point.

HEDGEFUNDIE
Posts: 3660
Joined: Sun Oct 22, 2017 2:06 pm

Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by HEDGEFUNDIE » Tue Sep 10, 2019 1:40 pm

Phineas J. Whoopee wrote:
Tue Sep 10, 2019 12:52 pm
Expressing a negative view of an investment product to be used over a longer period than one day, while including references, is not censoring discussion.
PJW
The OP was expressly calling for the mods to clamp down.

HEDGEFUNDIE
Posts: 3660
Joined: Sun Oct 22, 2017 2:06 pm

Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by HEDGEFUNDIE » Tue Sep 10, 2019 1:40 pm

305pelusa wrote:
Tue Sep 10, 2019 1:20 pm
KyleAAA wrote:
Tue Sep 10, 2019 12:09 pm
305pelusa wrote:
Tue Sep 10, 2019 11:10 am
HEDGEFUNDIE wrote:
Tue Sep 10, 2019 10:28 am
schooner wrote:
Tue Sep 10, 2019 10:26 am


Bookmarked ;-)
Just out of curiosity, if my strategy did maintain 20%+ CAGRs for the next 20 years, would you call me vindicated or lucky?
I'd ask you the same as well: If it achieved terrible results, lagging that of a simple portfolio of index stock funds, would you say you were unlucky or would you agree it was a terrible idea?
The answer, of course, is neither. Just because a particular implementation of an idea is successful or not over a specific time period doesn't necessarily invalidate the idea itself. Maybe the leveraged ETFs turn out to be a poor vehicle for practical reasons, but another slightly different application of leverage is wildly successful. And I mostly see people advocating leverage in service of a form of risk parity approach, so they wouldn't JUST be holding 3x leverage ETFs and wouldn't expect to see 20% annual returns.
That's exactly my point. Saying someone is vindicated because they get absurdly good results is as unfair as saying they were totally wrong just because they get terrible results :sharebeer :sharebeer
A theory that does not work in practice is a bad theory.

User avatar
Phineas J. Whoopee
Posts: 8819
Joined: Sun Dec 18, 2011 6:18 pm

Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by Phineas J. Whoopee » Tue Sep 10, 2019 1:42 pm

HEDGEFUNDIE wrote:
Tue Sep 10, 2019 1:40 pm
Phineas J. Whoopee wrote:
Tue Sep 10, 2019 12:52 pm
Expressing a negative view of an investment product to be used over a longer period than one day, while including references, is not censoring discussion.
PJW
The OP was expressly calling for the mods to clamp down.
OP's edit explicitly disclaims that request.

PJW

schooner
Posts: 294
Joined: Sun Jun 09, 2019 8:27 am

Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by schooner » Tue Sep 10, 2019 1:46 pm

HEDGEFUNDIE wrote:
Tue Sep 10, 2019 1:37 pm
305pelusa wrote:
Tue Sep 10, 2019 11:10 am
HEDGEFUNDIE wrote:
Tue Sep 10, 2019 10:28 am
schooner wrote:
Tue Sep 10, 2019 10:26 am
HEDGEFUNDIE wrote:
Tue Sep 10, 2019 10:23 am


Check back in 20 years.
Bookmarked ;-)
Just out of curiosity, if my strategy did maintain 20%+ CAGRs for the next 20 years, would you call me vindicated or lucky?
I'd ask you the same as well: If it achieved terrible results, lagging that of a simple portfolio of index stock funds, would you say you were unlucky or would you agree it was a terrible idea?
20 years is enough time to tell. I’d admit to being wrong at that point.
Absolutely agree. 20 years is enough time to tell in my book. At a certain point, you can't argue with success...or failure. Real life is not theory. It's results.

EddyB
Posts: 1082
Joined: Fri May 24, 2013 3:43 pm

Re: [Leveraged ETFs vs. Bogleheads Investment Philosophy]

Post by EddyB » Tue Sep 10, 2019 1:51 pm

Phineas J. Whoopee wrote:
Tue Sep 10, 2019 1:42 pm
HEDGEFUNDIE wrote:
Tue Sep 10, 2019 1:40 pm
Phineas J. Whoopee wrote:
Tue Sep 10, 2019 12:52 pm
Expressing a negative view of an investment product to be used over a longer period than one day, while including references, is not censoring discussion.
PJW
The OP was expressly calling for the mods to clamp down.
OP's edit explicitly disclaims that request.

PJW
I'm not sure I agree (the edited post concedes that a mod told OP it wasn't going to happen, but I don't see a disclaimer of the request), but in any case, I'm trying to understand your point---the "censorship!" posts preceded the edit.

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