I’m Keith DeGreen and this is your Investors Minute.
Lately we’ve discussed the pros and cons of leveraged ETFs – exchange-traded funds that rise and fall two or three times more rapidly than an underlying index like the S&P 500.
Here are the rules I recommend when using leveraged ETFs:
First, never buy and forget a leveraged ETF. Keep an eye on it and if markets begin to correct, abandon ship quickly!
Second, remember that leveraged ETFs tend to work best in steadily rising markets, not in volatile markets. The time to own a leveraged ETF is when the Volatility Index – known by its ticker, “VIX” – remains low.
Finally, watch your internal costs. Leveraged ETFs tend to have considerably higher internal expenses – known as expense ratios – than their non-leveraged counterparts. However, they are still less expensive than most actively-managed mutual funds.
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