2X funds risk

[sk55]

guys,

just look at the 3 yr performance of the SSO, seems like something i might want to add in my VP.

seems like if you bought these at the near the start at the bull market and held you would have done pretty well?

i dont see any evidence of any decay, seems to track 2x spy pretty well?

do you guys see any downside of holding this for a year at a start of a bull market?


thanks

[Tyler]

With any investment, if you know exactly when the bull market starts and ends then there's generally no downside.  The trick is first finding that crystal ball. 

[craigr]

I never recommend using any kind of leverage for investing, even in the Variable Portfolio. While it is true you aren't going to lose more than you put in with these 2X leveraged funds (as opposed to using margin), there is still a good chance you can experience large losses quickly. Yes, this is speculative money so that's the risk. But I still think even for speculative funds you be a little more cautious and simply buy a normal stock index if you want to bet on the stock market.

But again, it is VP money. Just as long as you aren't going to lose more than you put in you can go for it. I just think that these funds are not good products myself and I would avoid them.

[hoost]

seems like if you bought these at the near the start at the bull market and held you would have done pretty well?

Yes, if you buy anything at the start of a bull market and hold it you will do pretty well.  Until the bear market.

do you guys see any downside of holding this for a year at a start of a bull market?

Are you implying that now is the start of a bull market?  How do you know?  If that's the case, why wouldn't you just go 100% into it?

As HB would say, we live in an uncertain world.  No one can predict the future.  Better to have a balanced portfolio that will perform acceptably in all economic conditions.

Regarding this in the VP, make sure you can't lose more than you've put in, and use a stop loss.

[sk55]

hoost,

i am not implying this is the start of a bull market.  Just pondering a plan for the next bull market.

i was trying to understand all the risk involved in a 2x fund.

they seem to be decay and tracking error.

Seems to me individual stocks can be more risky then some 2x funds.

[hoost]

My plan for the next bull market will be to buy more LTT's, gold, and STT's (and probably actually TSM to stay in balance).    I think Clive had a thread exploring 2x funds recently.  Might look there for some of his in-depth analysis.