Riding HEDGEFUNDIE’s excellent adventure

[jarjarM]

I've always said the glaring hole (and the reason hedge funds use lots of forms of risk management and hedging, when using leverage) is when stock/bond correlations turn positive. Which they often are – just often both in a favourable direction, so we don't notice it as much.

Two different ways I'd investigate modifying this strategy are:

– Hold a third asset that hedges inflation quite well (I might be thinking an Energy ETF, maybe unleveraged, or leveraged at a low weighting – gold/resources stocks. As it's inflation and rate hikes that are going to kill the current implementation).
– Go >300% stocks, and use Stop Losses to hedge. I think Marty Schwartz built his fortune trading leveraged S&P500 with plain old moving averages. I like to use perhaps 3 different floating stops, each hedging maybe 1/3rd of the portfolio. Short, medium and long-term trends. You can also use volatility to cut exposure.

There were some long discussions in the 2nd thread (going thru 10s of pages) discussing MA and volatility targeting as a way to rebalance between stock/bond. The one thing that we didn't really think about is going to CASH since it wasn't really in the original simulation and since the backtest really started in the 1980s so mostly a bull market on bond. There were some discussion about the 1960/70s high inflation/interest rate regime but the original premise that it won't likely return for substantially period of time.

I actually started with 3rd component in GOLD via UGLD (3x GLD) but that was delisted But that wasn't very useful in 2022 as the USD was too strong for gold to shine.

[jarjarM]

I’m continuing to ride with 50/50 UPRO/TMF. I started in early 2018, and backtesting results against S&P 500 I’m about breaking even (or maybe slightly worse after this year). I rebalance quarterly, for the most part. My goal is to ride it 10yrs.

My HFEA side portfolio is much smaller than some posters here, so there’s not as much at stake.

That's interesting, the original thread/proposal from HEDGEFUNDIE was from 2019 (I started within a month of his thread). So you started over a year before him then.

[Tonygis]

I started on March 2019 with $10,000. Rebalance quarterly. 55 UPRO/ 45 TMF. Current balance at $17,836. The rest of my portfolio is boring. This gives me something to look at. Thanks Hedgefundie wherever you are.

[aj76er]

I’m continuing to ride with 50/50 UPRO/TMF. I started in early 2018, and backtesting results against S&P 500 I’m about breaking even (or maybe slightly worse after this year). I rebalance quarterly, for the most part. My goal is to ride it 10yrs.

My HFEA side portfolio is much smaller than some posters here, so there’s not as much at stake.

That's interesting, the original thread/proposal from HEDGEFUNDIE was from 2019 (I started within a month of his thread). So you started over a year before him then.

Sorry, I was misremembering the start date. Must have been early 2019. I definitely stared this due to the original Hedgefundie thread.

[Logan Roy]

I've always said the glaring hole (and the reason hedge funds use lots of forms of risk management and hedging, when using leverage) is when stock/bond correlations turn positive. Which they often are – just often both in a favourable direction, so we don't notice it as much.

Two different ways I'd investigate modifying this strategy are:

– Hold a third asset that hedges inflation quite well (I might be thinking an Energy ETF, maybe unleveraged, or leveraged at a low weighting – gold/resources stocks. As it's inflation and rate hikes that are going to kill the current implementation).
– Go >300% stocks, and use Stop Losses to hedge. I think Marty Schwartz built his fortune trading leveraged S&P500 with plain old moving averages. I like to use perhaps 3 different floating stops, each hedging maybe 1/3rd of the portfolio. Short, medium and long-term trends. You can also use volatility to cut exposure.

There were some long discussions in the 2nd thread (going thru 10s of pages) discussing MA and volatility targeting as a way to rebalance between stock/bond. The one thing that we didn't really think about is going to CASH since it wasn't really in the original simulation and since the backtest really started in the 1980s so mostly a bull market on bond. There were some discussion about the 1960/70s high inflation/interest rate regime but the original premise that it won't likely return for substantially period of time.

I actually started with 3rd component in GOLD via UGLD (3x GLD) but that was delisted But that wasn't very useful in 2022 as the USD was too strong for gold to shine.

I've not gone through the whole thread. I'm always very reluctant to recommend MAs, because it is trading – and it's very subject to backtesting biases. e.g. Our stock market (FTSE 100) behaves somewhat like the S&P, and yet it only takes slightly different characteristics for something like a 200 SMA strategy to completely fail with it – and just keep taking you out on price swings. It would be such a disaster if someone were following a 200 SMA rule with a market that wasn't playing ball.. So the lesson from the hedge fund world (imo) is that you need a mix of systematic and discretionary – and you always need discretionary overlooking systematic, because systematic goes wrong (esp. when you're working forwards).

I'd say the mistake with Hedgefundie is that hedge funds worked through these ideas and problems all throughout the 80s, 90s, etc. and you can learn a lot by reading things like Market Wizards. I think it's the same mistake academia makes, by not researching everything fund managers discovered working with stock screens for decades. The mistakes have already been made in the industry, and markets have adapted to a lot of the solutions too. I think the All Weather portfolio (with leverage – as discussed by Bridgewater) answered the problem Hedgefundie's trying to answer. Until rates got too low, then you had to come up with a new solution. The simplest was probably just to reign in bond duration drastically as downside became much greater than upside (with rates getting so low).

[456M]

Has anyone taken a look at the AUM of TMF recently? It was always in the range of $100M to $400M since inception right up until October 2022, then it just exploded to $2.5B and is hitting new highs every day. For comparison, $TLT AUM has also grown to new highs but not to this extent.

https://ycharts.com/companies/TMF/total ... management

[firebirdparts]

Sounds like somebody is really good at market timing.

[danbdzs]

Has anyone taken a look at the AUM of TMF recently? It was always in the range of $100M to $400M since inception right up until October 2022, then it just exploded to $2.5B and is hitting new highs every day. For comparison, $TLT AUM has also grown to new highs but not to this extent.

https://ycharts.com/companies/TMF/total ... management

Would this have an impact on the expense ratio?

[Marseille07]

Would this have an impact on the expense ratio?

Nope unless they decide to reduce it since they earn more as the AUM skyrocketed.

[am]

With rates continuing to rise, have most been rebalancing to 55 upro/45 tmf, letting it ride without rebalancing or simply quit and taken losses? I remember a rising rate environment being mentioned as a killer for this plan.

Wondering what to do? I am up on upro and down thousands on tmf, overall down 18k.

[Tinkerer-in-Chief]

Has anyone taken a look at the AUM of TMF recently? It was always in the range of $100M to $400M since inception right up until October 2022, then it just exploded to $2.5B and is hitting new highs every day. For comparison, $TLT AUM has also grown to new highs but not to this extent.

https://ycharts.com/companies/TMF/total ... management

Maybe lots of institutional investors look at long term interest rates and figure that what goes up must come down?

That, or TMF's marketing department is full of geniuses.

[Marseille07]

Maybe lots of institutional investors look at long term interest rates and figure that what goes up must come down?

That, or TMF's marketing department is full of geniuses.

We just know that people are flocking to own TMF. We don't know if they're making a sound move. They might be onboarding the Titanic.

[corpgator]

With rates continuing to rise, have most been rebalancing to 55 upro/45 tmf, letting it ride without rebalancing or simply quit and taken losses? I remember a rising rate environment being mentioned as a killer for this plan.

Wondering what to do? I am up on upro and down thousands on tmf, overall down 18k.

Started buying a little TMF here and there, but not rebalancing until the fed decides it's through with rate hikes, which seems like it will be never.

[Tinkerer-in-Chief]

With rates continuing to rise, have most been rebalancing to 55 upro/45 tmf, letting it ride without rebalancing or simply quit and taken losses? I remember a rising rate environment being mentioned as a killer for this plan.

Wondering what to do? I am up on upro and down thousands on tmf, overall down 18k.

A rising rate environment is killer for HFEA. I started my variant (50/25/25 UPRO/TMF/BLV) mid-2020 and my CAGR is approx. -7% and my overall money-weighted loss is approx. -21%. I do not think we are in for a return of the 1970s and the Fed's pre-Volcker stop-go rate policies. This will be a couple years of pain, and not a decade of pain. Rates will level off for a while and then go lower.

I have been rebalancing quarterly on the dot. I think it's fine to abandon ship if one realizes one's risk tolerance was not as high as one thought, but I do not understand the logic of ceasing to rebalance. If one wants to time long term rate changes by reducing TMF exposure then it makes more sense to sell the TMF position for a while.

Right now HFEA has underperformed the US total stock market for a little more than 18 months. Years of underperformance against the US market is a risk I was aware of before investing. HFEA is incredibly volatile.

[Tinkerer-in-Chief]

Maybe lots of institutional investors look at long term interest rates and figure that what goes up must come down?

That, or TMF's marketing department is full of geniuses.

We just know that people are flocking to own TMF. We don't know if they're making a sound move. They might be onboarding the Titanic.

lol, that's definitely a possibility. The yield curve is a fickle mistress.

[secondopinion]

Sounds like somebody is really good at market timing.

Referring to buying in October 2022? I have so many share lots dated in October 2022. The money came from a CD that I broke into because the rates increased significantly; and I need to tax loss harvest and rebalance. I went overboard for a month as I bought the ETFs first, wait 31 days, and then sold the old shares for whatever it was. A swing trade I will not lie, but I now have a good amount of tax deferred swing profits (even some of my 20%+ tax losses were no longer losses when they got sold).

However, these were not in leveraged funds; so, I guess I was too chicken for that.

[aj76er]

With rates continuing to rise, have most been rebalancing to 55 upro/45 tmf, letting it ride without rebalancing or simply quit and taken losses? I remember a rising rate environment being mentioned as a killer for this plan.

Wondering what to do? I am up on upro and down thousands on tmf, overall down 18k.

In 2022, I don’t think I rebalanced at all since both TMF and UPRO were going down in tandem (i.e. the correlations became positive). In 2023, thinking that the worst of the rate hikes were behind us, I returned to rebalancing quarterly to my original 50/50 target. However, moving forward I’m thinking of switching my strategy to the following:

No more rebalancing and let things ride until we get a demand shock to the economy and the FED is forced to lower rates. This should make TMF pop, which would be a trigger to sell out and go all in to UPRO. Ideally, this would catch the beginning of the next bull market (5-10yrs). 100% UPRO at the start of a long bull is really something (you can backtest this over the last bull market).

Market timing? Absolutely, but this is just play money for me (< 1% of NW at this point).

As mentioned already, the original strategy is lagging the S&P 500 and has not delivered. So, my strategy above would be a swing for the fences .

[HoldTheLine]

Decided to bail at the Apr 2022 rebalance (moved from 55-45 to all 1x stocks). Due to rates being higher and having read better information about LETF behavior over the last year and a half, I'm back in at a lower leverage ratio:

Nontaxable
20 UPRO
20 CURE
20 EDV
10 FSTA
10 XLU
5 IAUM
15 VOO

I'm looking forward to trying Fidelity's Fidfolio for 1-click rebalancing, although I'm still planning to rebalance only quarterly.

In taxable, a much simpler 50/50 SSO/RXL that I may try to avoid rebalancing. Overall, I feel much more confident in this allocation due to the lower leverage ratio and better information than I did when I started investing in HFEA.

[jarjarM]

Decided to bail at the Apr 2022 rebalance (moved from 55-45 to all 1x stocks). Due to rates being higher and having read better information about LETF behavior over the last year and a half, I'm back in at a lower leverage ratio:

Nontaxable
20 UPRO
20 CURE
20 EDV
10 FSTA
10 XLU
5 IAUM
15 VOO

I'm looking forward to trying Fidelity's Fidfolio for 1-click rebalancing, although I'm still planning to rebalance only quarterly.

In taxable, a much simpler 50/50 SSO/RXL that I may try to avoid rebalancing. Overall, I feel much more confident in this allocation due to the lower leverage ratio and better information than I did when I started investing in HFEA.

That's a pretty strong sector tilt with 20% in CURE and 50% in RXL in taxable. Just curious as to why the strong conviction in the sector?

[jarjarM]

With rates continuing to rise, have most been rebalancing to 55 upro/45 tmf, letting it ride without rebalancing or simply quit and taken losses? I remember a rising rate environment being mentioned as a killer for this plan.

Wondering what to do? I am up on upro and down thousands on tmf, overall down 18k.

In 2022, I don’t think I rebalanced at all since both TMF and UPRO were going down in tandem (i.e. the correlations became positive). In 2023, thinking that the worst of the rate hikes were behind us, I returned to rebalancing quarterly to my original 50/50 target. However, moving forward I’m thinking of switching my strategy to the following:

No more rebalancing and let things ride until we get a demand shock to the economy and the FED is forced to lower rates. This should make TMF pop, which would be a trigger to sell out and go all in to UPRO. Ideally, this would catch the beginning of the next bull market (5-10yrs). 100% UPRO at the start of a long bull is really something (you can backtest this over the last bull market).

Market timing? Absolutely, but this is just play money for me (< 1% of NW at this point).

As mentioned already, the original strategy is lagging the S&P 500 and has not delivered. So, my strategy above would be a swing for the fences .

Yup, same here, stopped rebalancing to TMF since early 2022 and being riding mostly UPRO for the last year. Let's see how the next few Fed meetings goes and then decide if TMF if back in play. And yes, definitely market timing here

[Walkure]

I still click the rebalance button every now and then in the Roth side of things, but that's a very small amount. I haven't added any new monies to the taxable side and have been avoiding triggering capital gains by selling UPRO, so that has drifted pretty far in the stock direction.

[jarjarM]

I still click the rebalance button every now and then in the Roth side of things, but that's a very small amount. I haven't added any new monies to the taxable side and have been avoiding triggering capital gains by selling UPRO, so that has drifted pretty far in the stock direction.

That's always been one of the potential issue with doing this in taxable. Though in 2022, there should be enough loss to carryforward for a while

[HoldTheLine]

That's a pretty strong sector tilt with 20% in CURE and 50% in RXL in taxable. Just curious as to why the strong conviction in the sector?

Two reasons:
- From a backtesting standpoint, it's the only fund with similar expected gains to the S&P500 equivalents (UPRO/SSO), while usually having lower volatility (very good for LETFs) and a non-negligible amount of uncorrelation with the market (about 0.8). With LETFs, that's practically free money. It's like the light version of UPRO/TMF -- mixing 50-50 UPRO + CURE or SSO + RXL almost gives the return of the better one with the volatility of the lower one.
- From a principles standpoint, the population is aging, so I think the sector will continue growing. Even in a sector black swan event like the government cracking down on drug price-gouging or such, I'm sure the companies will figure things out and be fine in the long run since the total money going to healthcare will continue increasing.

[HoldTheLine]

That's a pretty strong sector tilt with 20% in CURE and 50% in RXL in taxable. Just curious as to why the strong conviction in the sector?

Two reasons:
- From a backtesting standpoint, it's the only leveraged fund whose underlying has similar expected gains to the S&P500 while usually having lower volatility (very good for LETFs) and a non-negligible amount of uncorrelation with the market (about 0.8). With LETFs, that's practically free money. It's like the light version of UPRO/TMF -- mixing 50-50 UPRO + CURE or SSO + RXL almost gives the return of the better one with the volatility of the lower one. In non-taxable, to me it's a no-brainer to try to take advantage of as much "uncorrelation" (diversification) as possible. In taxable, less sure. I've seen a lot of discussion on tax drag but only a couple of empirical analyses. Not enough confidence to commit to rebalancing in spite of tax drag.
- From a principles standpoint, the population is aging, so I think the sector will continue growing. Even in a sector black swan event like the government cracking down on drug price-gouging or such, I'm sure the companies will figure things out and be fine in the long run since the total money going to healthcare will continue increasing.

[OohLaLa]

That's a pretty strong sector tilt with 20% in CURE and 50% in RXL in taxable. Just curious as to why the strong conviction in the sector?

Two reasons:
- From a backtesting standpoint, it's the only fund with similar expected gains to the S&P500 equivalents (UPRO/SSO), while usually having lower volatility (very good for LETFs) and a non-negligible amount of uncorrelation with the market (about 0.8). With LETFs, that's practically free money. It's like the light version of UPRO/TMF -- mixing 50-50 UPRO + CURE or SSO + RXL almost gives the return of the better one with the volatility of the lower one.
- From a principles standpoint, the population is aging, so I think the sector will continue growing. Even in a sector black swan event like the government cracking down on drug price-gouging or such, I'm sure the companies will figure things out and be fine in the long run since the total money going to healthcare will continue increasing.

I don't want to detract from the main point of this thread, but:
If you haven't already, check out UGE (2x S&P Consumer Staples) if you're interested in SSO-like returns and lower volatility. Traditionally, Utilities get thrown into the lot, but the 2x version (UPW) just seems like a drag, to me.

[alex6499]

I've decided that I'm done with this strategy after sitting at a 44% unrealized loss in the ROTH IRA that's hosting the UPRO/TMF. Too wild for my risk tolerance lol. I've started another ROTH IRA that only contains VTI. From here on out, future contributions are going to that one. Still holding onto the UPRO/TMF IRA, but I plan to eventually roll the funds into the IRA that has the VTI. I plan to at least hold the TMF until I reach a point where I'm comfortable transferring it into VTI.

Here's my question. Does anyone smarter than me (most anyone ) see any reason not to transfer the UPRO into my VTI IRA right now? I want to exit the strategy, and I'm at a solid gain with the UPRO. I would leave the TMF (currently down 88% ) in the hopes that it recovers eventually. I'm 28 and have nothing but time to wait lol.

[er999]

I've decided that I'm done with this strategy after sitting at a 44% unrealized loss in the ROTH IRA that's hosting the UPRO/TMF. Too wild for my risk tolerance lol. I've started another ROTH IRA that only contains VTI. From here on out, future contributions are going to that one. Still holding onto the UPRO/TMF IRA, but I plan to eventually roll the funds into the IRA that has the VTI. I plan to at least hold the TMF until I reach a point where I'm comfortable transferring it into VTI.

Here's my question. Does anyone smarter than me (most anyone ) see any reason not to transfer the UPRO into my VTI IRA right now? I want to exit the strategy, and I'm at a solid gain with the UPRO. I would leave the TMF (currently down 88% ) in the hopes that it recovers eventually. I'm 28 and have nothing but time to wait lol.

Might as well transfer everything if you are truly done with the strategy as no guarantee that tmf will come back. What you don’t want to do is re-enter HFEA in, say. two years from now if HFEA is successful in outperforming VTI.

[Hydromod]

I've decided that I'm done with this strategy after sitting at a 44% unrealized loss in the ROTH IRA that's hosting the UPRO/TMF. Too wild for my risk tolerance lol. I've started another ROTH IRA that only contains VTI. From here on out, future contributions are going to that one. Still holding onto the UPRO/TMF IRA, but I plan to eventually roll the funds into the IRA that has the VTI. I plan to at least hold the TMF until I reach a point where I'm comfortable transferring it into VTI.

Here's my question. Does anyone smarter than me (most anyone ) see any reason not to transfer the UPRO into my VTI IRA right now? I want to exit the strategy, and I'm at a solid gain with the UPRO. I would leave the TMF (currently down 88% ) in the hopes that it recovers eventually. I'm 28 and have nothing but time to wait lol.

Might as well transfer everything if you are truly done with the strategy as no guarantee that tmf will come back. What you don’t want to do is re-enter HFEA in, say. two years from now if HFEA is successful in outperforming VTI.

Congratulations! You've gained important data on your risk tolerance more cheaply than any time in the future. You should be able to use that information for the rest of your life.

HFEA is designed to be considered as a whole, not as a collection of independent parts. You need to be committed to both parts if you are committed to HFEA. If you are done with HFEA as a strategy, it's time to exit completely and completely reset your portfolio according to your new understanding of your risk tolerance.

[Kbg]

I've decided that I'm done with this strategy after sitting at a 44% unrealized loss in the ROTH IRA that's hosting the UPRO/TMF. Too wild for my risk tolerance lol. I've started another ROTH IRA that only contains VTI. From here on out, future contributions are going to that one. Still holding onto the UPRO/TMF IRA, but I plan to eventually roll the funds into the IRA that has the VTI. I plan to at least hold the TMF until I reach a point where I'm comfortable transferring it into VTI.

Here's my question. Does anyone smarter than me (most anyone ) see any reason not to transfer the UPRO into my VTI IRA right now? I want to exit the strategy, and I'm at a solid gain with the UPRO. I would leave the TMF (currently down 88% ) in the hopes that it recovers eventually. I'm 28 and have nothing but time to wait lol.

Personally, I would ride it out. For those of us with a little more wear on our treads, we understand that markets recover and interest rates cycle.

I think holding UPRO is a no brainer and I would add to it in order to average down your cost...just do it. It will work out in the end and faster than freezing it in place. Let's say you invested 10K and are down to 7K, top it off to 10K and keep doing so maybe every, 3, 6, 9, or 12 months. Take a pass on adding if the market is currently above average volatility so you aren't losing money to volatility decay alone when you don't need to be. In my multi-year TQQQ investing I've had blocks of shares up 1000%+. 3x leverage does some amazing things (good and bad). As a side note, there's some good math on how to average down in various ways with different properties. Not going to get into it here, but it's worth some Googling if you're mathematically inclined.

TMF is quite a bit more difficult as none of us know what the interest rate future holds and the degree to which it will (or will not recover). However, it would probably be worth your time to review a long term chart of TMF. A recovery to 10, 15 or 20 per share is easily within the realm of the possible as part of an interest rate cutting cycle. I personally would be quite surprised to see anything near the high in TMF for a very long time and don't plan on fully recovering the TMF funds unless adding to them. With the size of the TMF drawdown, you will likely never recover what you put into it with a standard bond ETF or bonds. Really the only way to salvage your TMF funds at this point in time is to be willing to average down. That could work out well or not, or take forever to do so.

Personally, I've done what I suggested for UPRO (only I use TQQQ) and it has worked out fine. For TMF I am not adding to it, but may very well do so when it looks like inflation and interest rates are going to cycle down again. Yes, that's timing. But for this, it's really Fed following.

Full disclosure...I thought a 100% commitment to 3xETFs was nuts and never did it. I've maintained a 50/50 allocation of 1.5 leverage.

Bottom line: If you have discovered your uncle point at 28, that's a good thing to learn. However, to be a successful investor you also need to learn patience and the value of time/sitting on your hands. If your uncle point says, nope not adding to this strategy, that's completely fine and move on to VTI. However, I do feel, with a large amount of confidence that you will recover with a profit what you have put into the strategy if you at least maintain your original investment amount and give it some time. (Of course the usual caveat applies...past history does not indicate future performance.)

And once you've recovered...then never do this again.

Sincerely,

Uncle kbg

[Tinkerer-in-Chief]

I've decided that I'm done with this strategy after sitting at a 44% unrealized loss in the ROTH IRA that's hosting the UPRO/TMF. Too wild for my risk tolerance lol. I've started another ROTH IRA that only contains VTI. From here on out, future contributions are going to that one. Still holding onto the UPRO/TMF IRA, but I plan to eventually roll the funds into the IRA that has the VTI. I plan to at least hold the TMF until I reach a point where I'm comfortable transferring it into VTI.

Here's my question. Does anyone smarter than me (most anyone ) see any reason not to transfer the UPRO into my VTI IRA right now? I want to exit the strategy, and I'm at a solid gain with the UPRO. I would leave the TMF (currently down 88% ) in the hopes that it recovers eventually. I'm 28 and have nothing but time to wait lol.

Given what you have stated about your risk tolerance and that you have settled on another investing strategy: remaining invested in UPRO/TMF seems irrational to me. A loss is a loss; there's nothing magical about waiting until you have a net capital gain instead of a loss. To let it ride now is a combination of loss aversion and the sunk cost fallacy. Here're a couple good write-ups on these:

https://thedecisionlab.com/biases/loss-aversion
https://thedecisionlab.com/biases/the-sunk-cost-fallacy

[jarjarM]

I've decided that I'm done with this strategy after sitting at a 44% unrealized loss in the ROTH IRA that's hosting the UPRO/TMF. Too wild for my risk tolerance lol. I've started another ROTH IRA that only contains VTI. From here on out, future contributions are going to that one. Still holding onto the UPRO/TMF IRA, but I plan to eventually roll the funds into the IRA that has the VTI. I plan to at least hold the TMF until I reach a point where I'm comfortable transferring it into VTI.

Here's my question. Does anyone smarter than me (most anyone ) see any reason not to transfer the UPRO into my VTI IRA right now? I want to exit the strategy, and I'm at a solid gain with the UPRO. I would leave the TMF (currently down 88% ) in the hopes that it recovers eventually. I'm 28 and have nothing but time to wait lol.

Might as well transfer everything if you are truly done with the strategy as no guarantee that tmf will come back. What you don’t want to do is re-enter HFEA in, say. two years from now if HFEA is successful in outperforming VTI.

Congratulations! You've gained important data on your risk tolerance more cheaply than any time in the future. You should be able to use that information for the rest of your life.

HFEA is designed to be considered as a whole, not as a collection of independent parts. You need to be committed to both parts if you are committed to HFEA. If you are done with HFEA as a strategy, it's time to exit completely and completely reset your portfolio according to your new understanding of your risk tolerance.

+1 on this. HFEA is really a 60/40 stock/bond type strategy that's leveraged up. Each part perform its part to optimize the overall return and volatility. 2022 is certainly a shock for 60/40 (the worst year adjusted for inflation I think) but who know what the future will hold. Keep in mind that in the 2000s and even in 2020 pandemic crash, long bond did its job to hold up the overall portfolio returns.

[jarjarM]

That's a pretty strong sector tilt with 20% in CURE and 50% in RXL in taxable. Just curious as to why the strong conviction in the sector?

Two reasons:
- From a backtesting standpoint, it's the only fund with similar expected gains to the S&P500 equivalents (UPRO/SSO), while usually having lower volatility (very good for LETFs) and a non-negligible amount of uncorrelation with the market (about 0.8). With LETFs, that's practically free money. It's like the light version of UPRO/TMF -- mixing 50-50 UPRO + CURE or SSO + RXL almost gives the return of the better one with the volatility of the lower one.
- From a principles standpoint, the population is aging, so I think the sector will continue growing. Even in a sector black swan event like the government cracking down on drug price-gouging or such, I'm sure the companies will figure things out and be fine in the long run since the total money going to healthcare will continue increasing.

Interesting take. I do expect healthcare to be a more defensive sector play but didn't dive into its correlation to SP500. For this leveraged strategy, a component with low correlation to SP500 but reasonable good expected return is something we're all hoping for. Thanks for sharing.

[Alpha4]

I've decided that I'm done with this strategy after sitting at a 44% unrealized loss in the ROTH IRA that's hosting the UPRO/TMF. Too wild for my risk tolerance lol. I've started another ROTH IRA that only contains VTI. From here on out, future contributions are going to that one. Still holding onto the UPRO/TMF IRA, but I plan to eventually roll the funds into the IRA that has the VTI. I plan to at least hold the TMF until I reach a point where I'm comfortable transferring it into VTI.

Here's my question. Does anyone smarter than me (most anyone ) see any reason not to transfer the UPRO into my VTI IRA right now? I want to exit the strategy, and I'm at a solid gain with the UPRO. I would leave the TMF (currently down 88% ) in the hopes that it recovers eventually. I'm 28 and have nothing but time to wait lol.

Might as well transfer everything if you are truly done with the strategy as no guarantee that tmf will come back. What you don’t want to do is re-enter HFEA in, say. two years from now if HFEA is successful in outperforming VTI.

Congratulations! You've gained important data on your risk tolerance more cheaply than any time in the future. You should be able to use that information for the rest of your life.

HFEA is designed to be considered as a whole, not as a collection of independent parts. You need to be committed to both parts if you are committed to HFEA. If you are done with HFEA as a strategy, it's time to exit completely and completely reset your portfolio according to your new understanding of your risk tolerance.

+1 on this. HFEA is really a 60/40 stock/bond type strategy that's leveraged up. Each part perform its part to optimize the overall return and volatility. 2022 is certainly a shock for 60/40 (the worst year adjusted for inflation I think) but who know what the future will hold. Keep in mind that in the 2000s and even in 2020 pandemic crash, long bond did its job to hold up the overall portfolio returns.

1917, 1931, and 2008 would like a brief word with you.....

[jarjarM]

I've decided that I'm done with this strategy after sitting at a 44% unrealized loss in the ROTH IRA that's hosting the UPRO/TMF. Too wild for my risk tolerance lol. I've started another ROTH IRA that only contains VTI. From here on out, future contributions are going to that one. Still holding onto the UPRO/TMF IRA, but I plan to eventually roll the funds into the IRA that has the VTI. I plan to at least hold the TMF until I reach a point where I'm comfortable transferring it into VTI.

Here's my question. Does anyone smarter than me (most anyone ) see any reason not to transfer the UPRO into my VTI IRA right now? I want to exit the strategy, and I'm at a solid gain with the UPRO. I would leave the TMF (currently down 88% ) in the hopes that it recovers eventually. I'm 28 and have nothing but time to wait lol.

Might as well transfer everything if you are truly done with the strategy as no guarantee that tmf will come back. What you don’t want to do is re-enter HFEA in, say. two years from now if HFEA is successful in outperforming VTI.

Congratulations! You've gained important data on your risk tolerance more cheaply than any time in the future. You should be able to use that information for the rest of your life.

HFEA is designed to be considered as a whole, not as a collection of independent parts. You need to be committed to both parts if you are committed to HFEA. If you are done with HFEA as a strategy, it's time to exit completely and completely reset your portfolio according to your new understanding of your risk tolerance.

+1 on this. HFEA is really a 60/40 stock/bond type strategy that's leveraged up. Each part perform its part to optimize the overall return and volatility. 2022 is certainly a shock for 60/40 (the worst year adjusted for inflation I think) but who know what the future will hold. Keep in mind that in the 2000s and even in 2020 pandemic crash, long bond did its job to hold up the overall portfolio returns.

1917, 1931, and 2008 would like a brief word with you.....

I think in those incidents long bond actually came to rescue and in all three cases inflation was not high. I was remember this article back Oct 2022]when it was on track to be the worse inflation adjusted loss but looks like it end up the 3rd worse, after 1931/1937, still one of the worse ever. While stock return definitely was worse for 2008, long bond saved the day (sort of).

[Alpha4]

Might as well transfer everything if you are truly done with the strategy as no guarantee that tmf will come back. What you don’t want to do is re-enter HFEA in, say. two years from now if HFEA is successful in outperforming VTI.

Congratulations! You've gained important data on your risk tolerance more cheaply than any time in the future. You should be able to use that information for the rest of your life.

HFEA is designed to be considered as a whole, not as a collection of independent parts. You need to be committed to both parts if you are committed to HFEA. If you are done with HFEA as a strategy, it's time to exit completely and completely reset your portfolio according to your new understanding of your risk tolerance.

+1 on this. HFEA is really a 60/40 stock/bond type strategy that's leveraged up. Each part perform its part to optimize the overall return and volatility. 2022 is certainly a shock for 60/40 (the worst year adjusted for inflation I think) but who know what the future will hold. Keep in mind that in the 2000s and even in 2020 pandemic crash, long bond did its job to hold up the overall portfolio returns.

1917, 1931, and 2008 would like a brief word with you.....

I think in those incidents long bond actually came to rescue and in all three cases inflation was not high. I was remember this article back Oct 2022]when it was on track to be the worse inflation adjusted loss but looks like it end up the 3rd worse, after 1931/1937, still one of the worse ever. While stock return definitely was worse for 2008, long bond saved the day (sort of).

In 1917 inflation was almost 20.5%. Stocks returned -18.57% nominal. I have no idea what total bond market returned (we have corporate long bond return data for 1917--they returned -9.49% nominal; but the only IT corporate or short-term corporate bond data we have going back that far is merely simulated from rates) but a blend of short, intermediate and long Treasuries returned -1.7% nominal. A 60/40 blend of stocks and Treasuries thus returned -11.82% nominal and -32.3% real.

In 1931 stocks returned -43.68% nominal. Long Treasuries returned -8.74% (FWIW long corporates did far worse; they returned -18.33%) but the same type of blend of ST/IT/LT treasuries as mentioned above (to crudely simulate TBM) only lost -2.08%. A 60/40 blend of stocks and Treasuries returned -27.05% nominal. There was actual deflation in 1931 so the real return for this portfolio came out to -18.24% which isn't quite as bad as the 60/40 did in 2022.....however......note that if actual TBM had existed back in 1931 this portfolio would almost certainly have done worse than it did as calculated here (possibly coming close to or even exceeding 2022's real loss); 1931 was not kind to corporate bonds of any type.

I presume 1937 was indeed possibly worse than 2022 as per your source.

In 2008 stocks lost 37% but TBM returned 6.5%; the 60/40 portfolio using 60% stocks and 40% TBM thus returned -19.6% nominal. Inflation in 2008 came to 3.84% so the real return on the portfolio for that year was -23.44% You are absolutely right that long bonds (specifically long Treasuries) would've saved the day in 2008 but every time I have seen the 60/40 mentioned on here it always uses either TBM or ITT (i.e. either BND or VFIRX) as the bond component rather than using long Treasuries; as such I used that for the 40% bond component in 2008.

Last year (2022) stocks produced a -19.5% return and bonds produced a -13.11% return; a 60/40 portfolio thus returned -16.94%. After that year's 6.45% inflation that produced a -23.39% real return which was just a hair better than 2008 above.

[alex6499]

I've decided that I'm done with this strategy after sitting at a 44% unrealized loss in the ROTH IRA that's hosting the UPRO/TMF. Too wild for my risk tolerance lol. I've started another ROTH IRA that only contains VTI. From here on out, future contributions are going to that one. Still holding onto the UPRO/TMF IRA, but I plan to eventually roll the funds into the IRA that has the VTI. I plan to at least hold the TMF until I reach a point where I'm comfortable transferring it into VTI.

Here's my question. Does anyone smarter than me (most anyone ) see any reason not to transfer the UPRO into my VTI IRA right now? I want to exit the strategy, and I'm at a solid gain with the UPRO. I would leave the TMF (currently down 88% ) in the hopes that it recovers eventually. I'm 28 and have nothing but time to wait lol.

Personally, I would ride it out. For those of us with a little more wear on our treads, we understand that markets recover and interest rates cycle.

I think holding UPRO is a no brainer and I would add to it in order to average down your cost...just do it. It will work out in the end and faster than freezing it in place. Let's say you invested 10K and are down to 7K, top it off to 10K and keep doing so maybe every, 3, 6, 9, or 12 months. Take a pass on adding if the market is currently above average volatility so you aren't losing money to volatility decay alone when you don't need to be. In my multi-year TQQQ investing I've had blocks of shares up 1000%+. 3x leverage does some amazing things (good and bad). As a side note, there's some good math on how to average down in various ways with different properties. Not going to get into it here, but it's worth some Googling if you're mathematically inclined.

TMF is quite a bit more difficult as none of us know what the interest rate future holds and the degree to which it will (or will not recover). However, it would probably be worth your time to review a long term chart of TMF. A recovery to 10, 15 or 20 per share is easily within the realm of the possible as part of an interest rate cutting cycle. I personally would be quite surprised to see anything near the high in TMF for a very long time and don't plan on fully recovering the TMF funds unless adding to them. With the size of the TMF drawdown, you will likely never recover what you put into it with a standard bond ETF or bonds. Really the only way to salvage your TMF funds at this point in time is to be willing to average down. That could work out well or not, or take forever to do so.

Personally, I've done what I suggested for UPRO (only I use TQQQ) and it has worked out fine. For TMF I am not adding to it, but may very well do so when it looks like inflation and interest rates are going to cycle down again. Yes, that's timing. But for this, it's really Fed following.

Full disclosure...I thought a 100% commitment to 3xETFs was nuts and never did it. I've maintained a 50/50 allocation of 1.5 leverage.

Bottom line: If you have discovered your uncle point at 28, that's a good thing to learn. However, to be a successful investor you also need to learn patience and the value of time/sitting on your hands. If your uncle point says, nope not adding to this strategy, that's completely fine and move on to VTI. However, I do feel, with a large amount of confidence that you will recover with a profit what you have put into the strategy if you at least maintain your original investment amount and give it some time. (Of course the usual caveat applies...past history does not indicate future performance.)

And once you've recovered...then never do this again.

Sincerely,

Uncle kbg

I really appreciate your words of wisdom! Given that it's in a ROTH IRA, I can definitely wait it out. Based upon your comment and others who so kindly replied, selling UPRO likely isn't a good option since it really dismantles the portfolio strategy. I can hold on and never do this leveraged nonsense again haha.