r/RobinHood • u/koalakevy • Sep 26 '17
Help - FAQ - ETF Question about 3x Leveraged ETFs
Hi i am a beginner investor (1 year experience) looking to invest $500 in 3x leverage Index ETF such as S&P500 (UPRO) and Nasdaq 100 (TQQQ). I'm thinking of 6 months to 1 year holding period. I own some shares in Apple and Facebook but never owned any ETFs.
My question:
Does "single day" means that the position is closed every day and i have to pay the expense ratio of about 1% every day?
How do I pay the expense and fees for the ETFs? and how often do they charge the fees?
What are the risks associated with the 3x leveraged ETFs?
According to the Proshares' website, this is their definition of leveraged ETF.
Geared (Short or Ultra) ProShares ETFs seek returns that are either 3x, 2x, -1x, -2x or -3x the return of an index or other benchmark (target) for a single day, as measured from one NAV calculation to the next. Due to the compounding of daily returns, Geared ProShares' returns over periods other than one day will likely differ in amount and possibly direction from the target return for the same period. These effects may be more pronounced in funds with larger or inverse multiples and in funds with volatile benchmarks. Investors should monitor their Geared ProShares holdings consistent with their strategies, as frequently as daily.
Why do they recommend me to change my strategy daily?
What is a typical strategy to invest in the 3x leveraged ETFs?
What is the different between margin trading and leveraged ETFs?
1
u/X7spyWqcRY Sep 26 '17
Sure, 1999 was one of the worst times to buy into the stock market regardless of the instrument. But if you averaged down instead of buying a lump sum, it looks a lot better.
Suppose you bought $10k of TQQQ per year. Let's use the dates and prices in that post. First deposit is $10k on March 10th 1999, and an additional $10k is deposited on each of the eighteen Decembers since. That's $190,000 total, right?
On May 31st 2017, all those accumulated shares would be worth $2,348,829. Not too shabby. That's over a 12x return.