I’m Keith DeGreen and this is your Investors Minute.
A leveraged ETF will rise or fall two or three times as rapidly as its underlying index. If you think a stock index will steadily rise – say the NASDAQ 100 Index – it’s tempting to roll the dice and buy QLD or TQQQ. Those ETFs rise two and three times as rapidly as the one-to-one NASDAQ 100 ETF, QQQ.
But here’s the rub: Suppose you buy QLD – 2X the NASDAQ 100, while your spouse buys QQQ – 1X the NASDAQ 100. Now suppose that index drops by, say, ten percent. Your spouse will need an 11% price increase to get back to breakeven, but you’ll need a 25% increase. While your ETF will rise twice as rapidly as your spouse’s, 25% is more than twice the 11% your spouse will need to reach breakeven. Ouch!
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