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can you beat the market by investing in double long etfs? [duplicate]
user
you miss the step where the return being doubled is daily. consider you invested $100 today, went up 10%, and tomorrow you went down 10%. third day market went up 1.01% and without leverage - got even. here's the calculation for you: day - start - end 1      $100    $120  -  +10% doubled 2      $120    $96   -  -10% doubled 3      $96     $97.94 - +1.01% doubled so in fact you're in $2.06 loss, while without leveraging you would break even. that means that if the trend is generally positive, but volatile - you'll end up barely breaking even while the non-leveraged investment would make profits. that's what the quote means. edit to summarize the long and fruitless discussion in the comments: the reason that the leveraged etf's are very good for day-trading is exactly the same reason why they are bad for continuous investment. you should buy them when there's a reasonable expectation for the market to immediately go in the direction you expect. if for whatever reason you believe the markets will plunge, or soar, tomorrow - you should buy a leveraged etf, ride the plunge, and sell it in the end of the day. but you asked the question about volatile markets, not markets going in one direction. there - you lose.
assistant