Using leveraged ETFs in a market crash… good idea or disaster waiting?

Leveraged ETFs have been getting a lot of attention lately. They’re super popular with both individual and institutional investors. There are so many options now, covering almost every sector and asset class. Most are 2x leveraged, but some go up to 3x.

Let’s say the S&P 500 drops 30-40%. Would it be a good move to sell off a 100% VOO portfolio and go all-in on SSO while the market recovers, then switch back to VOO? I’ve read you shouldn’t hold leveraged ETFs long-term, but has anyone tried this kind of strategy?

Who says leveraged ETFs are popular with institutional investors? That doesn’t sound right.

Blaise said:
Who says leveraged ETFs are popular with institutional investors? That doesn’t sound right.

Check this out: https://hedgefollow.com/stocks/TQQQ

Time decay and volatility drag are major issues. Market pullbacks will hurt a lot more with leveraged ETFs.

Read the book ‘Lifecycle Investing’ and look into Hedgefundie’s portfolio strategy. Just remember, timing the market is tough, and the drawdowns can be brutal. I’ve considered it but haven’t been brave enough to try.

The logic checks out, but will you actually have the guts to go through with it during a bear market?

If you time the bottom perfectly, sure, you’ll make a ton of money. But if you’re off, you’ll take even bigger losses and it’ll take much longer to recover.

I personally trade single-stock leveraged ETFs for TSLA. I sell a portion when it peaks and go 2x short with TSLQ for a few days. Then, when I think the pullback is done, I go back in with TSLL or just buy regular TSLA shares. It’s risky but works for me.

For SPY, holding leveraged ETFs long-term isn’t ideal because of volatility drag. Using margin might be better if you’re set on long-term leverage.

“Everybody knows you never go full LETF.”

I’ve got $100k sitting in a high-yield savings account waiting for a market drop. Planning to put $80k into TQQQ during the next downturn. Might even use some leverage.

I’d rather just go with LEAPS (long-term equity options).

Going 100% into leveraged ETFs is way too risky if your timing is off. Why not just use a portion of your portfolio instead?

You’re not going to time the bottom. And honestly, it’s funny how many people bring up buying TQQQ after the market has already gone up a lot. Nobody talked about it during the Fall 2022 dip.

TQQQ has been my only holding since 2017, and it’s done really well for me. You can hold leveraged ETFs long-term if you understand the risks. I’ve shared my experience in other posts.

If you’ve got extra money to invest, the risk/reward could be worth it. If we see another drop like 2022, buying TQQQ, QLD, or SPYU might pay off.

It sounds great in theory, but how are you going to time the bottom? Missing just 10 of the best market days in any 20-year period can cut your returns in half.

Think about October 13, 2008, when the S&P jumped 11.3%, or April 6, 2020, when it rose 7.0%. What if you were sitting on the sidelines then?