I rant about my disdain for leverage ETFs far more than is healthy…
But I still get pushback from those who want maximum upside and think leveraged funds are the way to get there…
So I thought I'd use a more extreme example...
At the beginning of war… with all the market uncertainty… many people flocked to bonds as a safe haven.
But they didn't buy regular bonds.
They bought leveraged bond ETFs.
And the results are as you'd expect...
If you’d bought the leading ETF investing in long-term U.S. Treasury bonds at its peak in August 2020... you’d have lost 46.3% by now.
But if you’d bought the Direxion Daily 20+ Year Treasury Bull 3X Shares ETF (which seeks to triple the daily return of long-term Treasury bonds)…
You’d have lost 90.2% of your investment.
Imagine having a 90% loss… in Treasuries.
The supposedly safest investment on earth
Meanwhile, the mirror-image fund that bets against Treasury bonds gained 266.6% during the same period.
And that’s the dangerous world of leveraged ETFs.
And it’s not just bonds.
These products exist for every asset class now...
What makes these products so dangerous?
They’re designed to track daily returns... not long-term performance.
Let me explain with a simple example...
Imagine an index that gains 5% one day and loses 5% the next.
If you invested $100 directly in that index, you’d have $99.75 after those two days.
But if you invested in a 3x leveraged version of that index, you’d have just $97.75 in the same time period.
To get back to your starting point, you’d need a 0.25% gain in the regular index but a 2.3% gain in the leveraged fund.
This mathematical reality means leveraged ETFs almost always underperform over time, even if you get the direction right.
Yet billions of dollars have poured into them as investors chase higher returns in uncertain markets.
The sad truth is that most people buying these products don’t understand how they work.
They see Treasury bonds in the name and think of safety
They see 3x returns and think of opportunity.
What they don’t see is the mathematical certainty of long-term underperformance.
So what should you do instead?
If you want safety, stick with traditional Treasury Bills or my personal preference… money market funds.
If you want growth, invest in quality companies with sustainable competitive advantages...
Want to know how to build a portfolio that can weather market uncertainty without dangerous leverage?
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Oliver