The problem isn't leveraged funds, it's margin on leveraged funds.

Leveraged funds are the safest way for the average investor to get access to leverage because unlike margin there is no risk of margin calls, and your money generally won't go to zero unlike options which are vastly more complicated and can expire.

The reality is that using leveraged funds (or any leverage) is a completely rational move because the average person will never retire wealthy unless they're already making a tech salary or similar.

Investing has always been gambling, even Warren Buffet made his biggest early wins on all-in bets.

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Galanwe 3 hours ago | parent | next [-]

> Leveraged funds are the safest way for the average investor to get access to leverage

I... do not agree that leveraged funds are somehow a safest way to access leverage.

Every product including leverage has inherently a non-linear P&L. And from my experience, non sophisticated investors always struggle to grasp the implications of that. It makes returns (on capital) very path dependent, and very nasty during volatile regimes. It breaks the naive assumption of "well I could always hold and wait for the dust to settle".

> unlike margin there is no risk of margin calls

This is a bit of a weird statement. Leverage implies margin, you cannot make it disappear, the funding and associated risk has to come from somewhere, it's just that it is continuously applied, instead of fixed timings.

I do agree that it simplifies planning and reserve management though.

> even Warren Buffet made his biggest early wins on all-in bets.

This is a bit disingenious, note that Buffet did not use leverage...

	▲	weakened_malloc 2 hours ago \| parent \| next [-]
		> This is a bit disingenious, note that Buffet did not use leverage... In a way, but Buffet wasn't making those investments exclusively using his own money. Effectively there's a degree of implied leverage when you get a performance reward from investing other people's money.
	▲	mkotlikov 2 hours ago \| parent \| prev [-]
		Buffet funded his investments with insurance float

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dannyw 3 hours ago | parent | prev | next [-]

Leveraged funds can be an excellent tool for portfolio construction, for example, products like 100% stocks + 100% bonds (so -100% cash; internally borrowed in the ETF), e.g. RSSB.

And just because it's available doesn't mean it should be your only ETF/ETP. Not a recommendation or advice, but something like 50% TQQQ, and 50% risk-off asset (gold, bonds, whatever); rebalanced regularly isn't crazy, and might even have alpha.

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itake an hour ago | parent | prev [-]

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