Why leveraged ETFs are bad long-term investments

By Oliver Rahman

When I first started investing in ETFs (an investment fund that makes up multiple stocks or other assets) I saw ones that were leveraged and ones that were not. I put some of my money (thankfully) into QQQ (which tracks the NASDAQ) and not leveraged ETFs like TQQQ (which tracks the NASDAQ at 3x leverage).

You might be thinking "what's so wrong with TQQQ? After all, if I put $100 into the TQQQ long term my profits would by 3x!". It's true that you CAN make 3x more with leveraged, but only if you hold it for less than a month, here's why:

Imagine you invested $100 into both ETFs over the span of a couple days:

-1%
QQQ: $99
TQQ 3x: $97

+3%
QQQ: $101.97
TQQQ 3x: $105.73

-2%
QQQ: $99.93
TQQQ 3x: $99.38

With the leveraged ETF you are already 0.55% down in 3 days! Compound that over a year and your losses would be huge (QQQ: $31.65, TQQ: $3.44). Now, I did say earlier that if you held these for less than a month you could potentially gain more than holding a regular ETF, and that's true if the overall market return during the month is continuously positive, in this example it is not. Over months compounding losses would have more effect on the leveraged ETF, considering indexes don't tend to go up continuously for months on end.

So, if you want to use leveraged ETFs to your advantage, make sure you are very confident and bullish about the market in the upcoming week/month!

For a real-life example, here I show the peak in late 2021 heading into the recession of 2022 and the peak now in December 2024. As you can see the regular ETF has gone higher than the leveraged one! This is because the losses from the 2022 recession were compounded greater than the regular ETF.