5 reasons people struggle with leveraged ETFs

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1.  You have to be right

If you pick the wrong direction you find out fast as the market moves against you.  In unleveraged investments you are allowed to drift slowly in the wrong direction before an abrupt crash.  This is akin to the Titanic as it drifted into that iceberg patch.  Unleveraged investments leave a lot of room for debate about what is going on with the investment and whether it’s in a correction or something more serious.  Not so with leveraged ETFs. 

With leveraged ETFs bad decisions are immediate and require a response which brings us to #2.

2.  You have to do something when you’re wrong

Because you’re using leverage you can’t just sit there and be wrong, you can’t wait for the market to come back, you have to sell and rethink your position on the market.  But it’s important to be careful  here – we’re not talking about day trading, but rather taking a position that’s obviously wrong, realizing it, and making a correction. 

Ex:  Going long the S&P 500 in the fall of 2008 or tech stocks in the spring of 2000. 

3.  You have to keep taking risk

Once you sell you need to pick a spot to come back in, you can’t just sit on the sideline forever.  This requires a lot of emotional fortitude that most investors (and advisors) do not possess.

4.  Results come – fast

Unlike buy and hold policies that take forever to materialize, leverage shows winners and losers fast. 

5.  You can’t hide

There is no need to diversify, the leverage will get you about the same results in almost every category.  Yes there are outliers, but trying to pick them ahead of the outperformance actually happening truly requires a crystal ball and quite frankly isn’t necessary.  If you can earn 25% with a standard market cap leveraged ETF – something that isn’t impossible throughout the year, why try to guess the direction of commodity prices or if the real estate market is going to pick up?  Just ride the direction of the stock market – which is usually up.

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Leveraged ETFs are the Most Powerful Investments on Earth!

1) They help Young Professionals multiply daily returns and become millionaires.

2) They reduce investment risk for Baby Boomers by reducing the amount of capital and time invested in the market

3) They are a great compliment to Hedge Fund Investors seeking hedge fund performance and greater liquidity without the “2 & 20″ cost structure.

They are quite frankly the greatest thing since sliced bread.

And they require expert handling.  I am that expert.

If you are considering using leveraged ETFs I invite you to contact me,   Maurice Wilson, via phone at 704-222-4162 or e-mail me at maurice@wilsonwealth.com

Join me on Facebook: http://www.facebook.com/theleveragedetfexpert

Company Website: www.wilsonwealth.com

About Maurice:  Through his firm Wilson Wealth, Maurice Wilson uses leveraged ETFs to magnify returns for aggressive investors seeking high returns while reducing investment risk for retirees looking to protect their nest egg.

DISCLAIMER:  The information presented in this article is meant for informational and educational purposes only and is not be construed as investment advice.   Please contact your financial advisor before using this information in your investment portfolio.  At any given time Maurice Wilson or  the advisors of Wilson Wealth Management Group, LLC may hold positions in the investments mentioned in this article and thus have a potential conflict of interest.

Leveraged ETFs aren’t Expensive

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One common argument against leveraged ETFs is that they’re expensive.Coupon

Expensive compared to what?  Cost is relative.

The typical leveraged ETF carries an expense ratio of just below 1% or $10 per $1,000 invested which seems relatively cheap until you compare it to a Vanguard ETF such as the VTI which charges $0.50 per $1,000 invested.  Obviously the unleveraged ETF is cheaper.

But what are you paying for?

Vanguard Total Market Viper (VTI) gives you the cheapest way to own fractional shares in thousands of companies in the stock market.  You essentially own the market for a discount.  Leveraged ETFs give you the opportunity to multiply the daily return of the stock market without incurring the risk of borrowed capital.

To truly judge the costs of leveraged ETFs you have to determine how much it costs the individual investor to borrow money to invest.  Typically this is done on margin.  However, margin has two very important restrictions:

1.  You can only borrow 50% of purchase costs i.e. you can only borrow 50% of what you need to invest.

2.  Investors can’t use margin in their IRAs or similar qualified accounts.

Leveraged ETFs give you the ability to multiply your market exposure by 300% (vs. 50% with margin) and use hedge fund style investment strategies that can potentially generate high capital gains in a tax deferred account such as an IRA all for less than$10 per $1,000 invested.  The fact that you can’t use margin in your IRA already makes this a fair cost for doing business.

When you consider that mutual funds in their original form would charge over 1.5%  in disclosed expenses leveraged ETFs aren’t expensive – they’re a bargain.

_________________________________________________________________________________________

Leveraged ETFs are the Most Powerful Investments on Earth!

1) They help Young Professionals multiply daily returns and become millionaires.

2) They reduce investment risk for Baby Boomers by reducing the amount of capital and time invested in the market

3) They are a great compliment to Hedge Fund Investors seeking hedge fund performance and greater liquidity without the “2 & 20″ cost structure.

They are quite frankly the greatest thing since sliced bread.

And they require expert handling.  I am that expert.

If you are considering using leveraged ETFs I invite you to contact me,   Maurice Wilson, via phone at 704-222-4162 or e-mail me at maurice@wilsonwealth.com

Join me on Facebook: http://www.facebook.com/theleveragedetfexpert

Company Website: www.wilsonwealth.com

About Maurice:  Through his firm Wilson Wealth, Maurice Wilson uses leveraged ETFs to magnify returns for aggressive investors seeking high returns while reducing investment risk for retirees looking to protect their nest egg.

DISCLAIMER:  The information presented in this article is meant for informational and educational purposes only and is not be construed as investment advice.   Please contact your financial advisor before using this information in your investment portfolio.  At any given time Maurice Wilson or  the advisors of Wilson Wealth Management Group, LLC may hold positions in the investments mentioned in this article and thus have a potential conflict of interest.

How to Trade Leveraged ETFs

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This is a good post on Minyanville that is a great strike against the negative noise usually associated with leveraged ETFs, enjoy!

http://www.minyanville.com/trading-and-investing/etfs/articles/leveraged-ETFs-trading-tips-trading-ETFs/6/11/2012/id/41634

______________________________________________________________________________________________

Leveraged ETFs are the Most Powerful Investments on Earth!

1) They help Young Professionals multiply daily returns and become millionaires.

2) They reduce investment risk for Baby Boomers by reducing the amount of capital and time invested in the market

3) They help Retirement Investors make up time by accelerating gains

They are quite frankly the greatest thing since sliced bread.

And they require expert handling.  I am that expert.

If you are considering using leveraged ETFs I invite you to contact me,   Maurice Wilson, via phone at 704-222-4162 or e-mail me at maurice@wilsonwealth.com

Join me on Facebook: www.facebook.com/wilsonwealth

Company Website: www.wilsonwealth.com

DISCLAIMER:  The information presented in this article is meant for informational and educational purposes only and is not be construed as investment advice.   Please contact your financial advisor before using this information in your investment portfolio.  At any given time Maurice Wilson or  the advisors of Wilson Wealth Management Group, LLC may hold positions in the investments mentioned in this article and thus have a potential conflict of interest.

Three Arguments Against Leveraged ETFs and How to Beat Them

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If you are a leveraged ETF investor you have to be prepared to defend your use of them against the conventional wisdom of the crowds (i.e. CNBC types and your typical financial journalist who’s never actually used the products).  Here are three common arguments against using leveraged ETFs and how to beat each and every one of them.

1.  Leveraged ETFs aren’t buy and hold investments.

How to Beat This Argument : Before the dawn of leveraged ETFs people had to be persuaded to NOT sell their  stocks when they started to go down.  They had to be persuaded to become BUY AND HOLD investors.  This is because at the first sign of losses investors cut and run.  This is the old behavioral finance problem.  Why would investors who sell at the first sign of trouble in unleveraged investments change their behavior with leveraged ETFs?

2.  Fees

How to Beat This Argument:  If you don’t hold these funds for a year then how or why would you pay the higher costs as reflected by their expense ratios?  Secondly if you did hold these funds for a period of more than 30, 60, or 90 days that would mean you were getting some pretty high returns relative to the stock market.  Isn’t that worth paying a higher fee?  What happened to getting what you pay for?  These are the ultimate investing vehicles.  Using their costs as a reason not to buy them is akin to arguing that a BMW costs more than a Ford.

3.  Losses

How to Beat this Argument – I could use the same argument as the buy and hold segment, but I’ll add something that is really a strong hold of classic investing – asset allocation.  As an advisor who specializes in using leveraged ETFs I restrict new clients to using no more than 25% of their portfolio to leveraged ETFs.  This has great psychological and real world benefits.  If a client losses 100% of their investment which let’s face it is pretty remote, then the total loss to their portfolio is 25%.  This gives us an absolute bottom on the strategy and a big psychological boost that losses are limited.

So to summarize.  Leveraged ETFs are criticized as not being buy and hold investments, carrying high fees, and exacerbating losses.  You can mitigate these “cons” by:

1)  not buying and holding these funds as you would long-term investments, but using strategic buy and sell points,

2)  using 30, 60, or 90 day holding periods,

3)  and implementing assets allocation to limit losses as a percentage of your overall portfolio.

What’s important here is to not let the media and people who may or may not be using these products prevent you from benefiting from them.  I know that if these products were off-limits to mainstream investors, they’d be clamoring for them (see principle of scarcity).

The ironic thing is that for many regular investors the tools these products use to produce potentially higher returns were largely out of reach until leveraged ETFs came on the scene.

Leveraged ETFs are an example of filling a void in the marketplace – a cornerstone of American enterprise.

____________________________________________________________________________________________

Leveraged ETFs are the Most Powerful Investments on Earth!

1) They help Young Professionals multiply daily returns and become millionaires.

2) They reduce investment risk for Baby Boomers by reducing the amount of capital and time invested in the market

3) They help Retirement Investors make up time by accelerating gains

They are quite frankly the greatest thing since sliced bread.

And they require expert handling.  I am that expert.

If you are considering using leveraged ETFs I invite you to contact me,   Maurice Wilson, via phone at 704-222-4162 or e-mail me at maurice@wilsonwealth.com

Join me on Facebook: www.facebook.com/wilsonwealth

Company Website: www.wilsonwealth.com

DISCLAIMER:  The information presented in this article is meant for informational and educational purposes only and is not be construed as investment advice.   Please contact your financial advisor before using this information in your investment portfolio.  At any given time Maurice Wilson or  the advisors of Wilson Wealth Management Group, LLC may hold positions in the investments mentioned in this article and thus have a potential conflict of interest.

I Don’t Day Trade Leveraged ETFs, But When I Do…

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Although I don’t advocate day trading leveraged ETFs as this breaks the first rule of my Rules for Using Leveraged ETFs, I’d be intellectually dishonest if I didn’t acknowledge that there are ways to use them in a day trading scenario.

For any day trading system to be taken seriously it must be based on some objective data that triggers a buy or sell.  In this particular scenario I like using leveraged ETFs to maximize the direction of a market when the futures are moving 50 points or more in any given direction.

For example if the Dow Jones futures are up 50 points before the market opens I’m prepared to buy a leveraged Dow Jones or S&P 500 ETF that day.  Conversely if the Dow Jones futures are down 50 points I’d reach for the inverse leveraged ETFs for the respective market index.

Now through back testing and actual application I have come to conclude that on almost any given day the first 60 minutes of market action provides desirable entry points for buying leveraged ETFs.

My favorite entry point for a leveraged ETF day trade is 1% below the opening price.  The reason being that even on the most bullish of days markets rarely move straight up so if one is patient they can catch the market taking a break in the early opening minutes before rocketing up.  This is when you may wish to buy.

Conversely my exit point would be at least 1% above my entry point.  I would look for more gains if the futures were 100 points or more or if the market sentiment (ex: headlines) proved to be supportive of a higher move.  In either case getting 1% is a must to have a successful trade.

When would I apply a strategy like this?

The time to use this strategy is when you have missed capitalizing on a longer trend in the market and are simply looking to make up ground, or you are a couple of points away from your target gain for the year.  I target an annual 25% return so if I had an account 5 percentage points away from this number and was nearing the end of the year this would be a strategy I would consider.

For those of you out there who simply prefer day trading over holding leveraged ETFs overnight this strategy could be the only one you use to carefully craft a desired return in the 8 – 10% range free of the stress of a buy and hold position (leveraged or unleveraged).  I say 8 – 10% because I assume you’ll get about 20 chances to execute this trade and you should be successful at least 50% of the time.

Putting it all together

Your trigger is a 50 point move in the Dow Jones futures (or similar gain percentage wise in the S&P 500 futures).

Your entry point is 1% below the opening price of the leveraged ETF.

Your exit point is 1% above the entry point.

Exceptions – you can target a higher gain if the futures are 100 points or more, but this is getting away from the sell discipline that keeps you out of trouble.  Of course nothing ventured nothing gained and most day traders are pretty adventurous.

____________________________________________________________________________________________

Leveraged ETFs are the Most Powerful Investments on Earth!

1) They help Young Professionals multiply daily returns and become millionaires.

2) They reduce investment risk for Baby Boomers by reducing the amount of capital and time invested in the market

3) They help Retirement Investors make up time by accelerating gains

They are quite frankly the greatest thing since sliced bread.

And they require expert handling.  I am that expert.

If you are considering using leveraged ETFs I invite you to contact me,   Maurice Wilson, via phone at 704-222-4162 or e-mail me at maurice@wilsonwealth.com

Join me on Facebook: www.facebook.com/wilsonwealth

Company Website: www.wilsonwealth.com

DISCLAIMER:  The information presented in this article is meant for informational and educational purposes only and is not be construed as invesment advice.   Please contact your financial advisor before using this information in y0ur investment portfolio.  At any given time Maurice Wilson or  the advisors of Wilson Wealth Management Group, LLC may hold positions in the investments mentioned in this article and thus have a potential conflict of interest.

Investopedia Releases Leveraged ETF Video

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This is a great short video about leveraged ETFs from Investopedia:

http://www.investopedia.com/video/play/explaining-leveraged-etfs/#axzz26sf0j6XB

____________________________________________________________________________________________

Leveraged ETFs are the Most Powerful Investments on Earth!

1) They help Young Professionals multiply daily returns and retire early

2) They reduce investment risk for Baby Boomers by reducing the amount of capital and time invested in the market

3) They help Retirement Investors make up time by accelerating gains

They are quite frankly the greatest thing since sliced bread.

And they require expert handling.  I am that expert.

If you are considering using leveraged ETFs I invite you to contact me,   Maurice Wilson, via phone at 704-222-4162 or e-mail me at maurice@wilsonwealth.com

Join me on Facebook: www.facebook.com/wilsonwealth

Company Website: www.wilsonwealth.com

Class Action Lawsuit Against ProShares Dismissed

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Please read about the latest the class action lawsuit against leading leveraged ETF provider ProShares:

http://newsandinsight.thomsonreuters.com/Legal/News/2012/09_-_September/New_York_judge_dismisses_class-action_over_leveraged_ETFs/

If you have any questions please give me a call.

_________________________________________________________________________________________

Leveraged ETFs are the Most Powerful Investments on Earth!

1) They help Young Professionals multiply daily returns and retire early

2) They reduce investment risk for Baby Boomers by reducing the amount of capital and time invested in the market

3) They help Retirement Investors make up time by accelerating gains

They are quite frankly the greatest thing since sliced bread.

And they require expert handling.  I am that expert.

If you are considering using leveraged ETFs I invite you to contact me,   Maurice Wilson, via phone at 704-222-4162 or e-mail me at maurice@wilsonwealth.com

Join me on Facebook: www.facebook.com/wilsonwealth

Company Website: www.wilsonwealth.com

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