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Author: spacebound11 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75528  
Subject: SSO for Long-Term ROTH Date: 3/5/2014 12:28 PM
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As the title suggests, I'm curious what the other Fools think about investing in a leverage ETF like SSO. Its a 2x S&P 500 ETF. I'm fairly young at 28 so could take on some risk. Here are my thoughts.

1. If I'm investing in an Index why not get more for my money with a 2 or 3x ETF.

2. I realize analysts possibly predict a market correction. That could be the best place to get into a leverage ETF and ride the wave back up.

3. I realize that with volatility a leveraged ETF can return negative earnings even if the underlying index is in the green. However, studies have shown that with a leverage ETF established in 1900, using the DOW as its underlying index, returned 204,000% by Jan 2013. Is this proof of a leverage ETF long term capability?

4. Are the added fees, maybe 1.5%, worth possibly getting more return for my investment.

In summary, I must admit this was one of those water cooler sessions with what seems like a very intelligent co-worker. However, I'm doing as much research as I can and would like some expert Fool input. Is a leverage ETF a good start with a ROTH at a fairly young age?

Thanks. Happy Investing.

Brandon
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Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74401 of 75528
Subject: Re: SSO for Long-Term ROTH Date: 3/5/2014 1:28 PM
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I'm curious what the other Fools think about investing in a leverage ETF like SSO.

Insane.

That you would even consider this is a strong indication that you are an innocent wandering in the woods, just another sheep to be fleeced.

Here's my overall suggestion for ANY investment strategy that someone is considering. Google "problems with {the strategy}".

In the case of SSO, they list the risks right up front. http://www.proshares.com/funds/sso.html
"seeks a return that is 2x the return of an index or other benchmark (target) for a single day,"

They even are so kind as to highlight "for a single day".

It's not their fault if you don't recognize this as the warning it is. What they are saying is that this will blow up in your face and you won't even have any idea why you just got stomped flat.

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Author: Hawkwin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74402 of 75528
Subject: Re: SSO for Long-Term ROTH Date: 3/5/2014 2:05 PM
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I won't be so harsh as Ray on leveraged ETFs - as I use them to often with some effectiveness. I even use some long(er) term (though that is not typical).

For example, I have owned TQQQ (3x NASDAQ) off and on since 2011. It is up over 200% during the last three years (and up over 500% in the last four years). I would have been much better off today if I had never sold and instead held on during the occasional dips. My personal returns about half what TQQQ has done due to my occasional desire to sell it and rebuy it.

You will of course have it not mirror a true 2x the return (less performance on the upside and worse than 2x on the downside) due to both the fees and the daily repricing but I don't see anything terribly wrong with a large, diversified leveraged growth position. What I would stay away from are any leveraged short positions.

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Author: whafa Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74403 of 75528
Subject: Re: SSO for Long-Term ROTH Date: 3/5/2014 2:08 PM
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I'm fairly young at 28 so could take on some risk.


You are young enough to get rich slow. My advice, 8 years your senior, is not to do anything that will possibly blow up in your face and turn you off to the idea of investing to begin with. It took me a decade to recover mentally from my losses in 2000 / 2001. The money I lost was chump change given what I earn today, but I was too shell-shocked to be anything but a market cynic for years. You should avoid that. Avoiding daily leveraged ETFs in a long term investment account is a good idea.

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Author: joelxwil Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74404 of 75528
Subject: Re: SSO for Long-Term ROTH Date: 3/5/2014 2:24 PM
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Consider: "The investment seeks daily investment results that correspond to two times (2x) the daily performance of the S&P 500".

That is on a daily basis only. This means that over the long term, you will have the same performance as the S&P 500. Twice up and twice down gets you to the same spot.

These funds can be traded profitably, and if you really want to have fun, you can trade a 2X long fund and a 2X inverse fund. Just be in the long fund when the market is going up and in the inverse fund when the market is going down. Very simple.

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Author: Hawkwin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74405 of 75528
Subject: Re: SSO for Long-Term ROTH Date: 3/5/2014 2:38 PM
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That is on a daily basis only. This means that over the long term, you will have the same performance as the S&P 500. Twice up and twice down gets you to the same spot.

That isn't necessarily correct. Holding period (and when you sell it) matters a lot

Compare TQQQ and QQQ over the last four years (TQQQ has only be around that long).

http://finance.yahoo.com/echarts?s=QQQ+Interactive#symbol=QQ...

Only if QQQ were to have a significant decline would TQQQ come back to have the same performance as QQQ. Conversly, QQQ would have to go sideways for a very long time for TQQQ to slowly erude back down to the QQQ value.

Now take a look at SSO and the S&P for the last five years. SSO crushed the S&P - 600% return vs less than 200%.

http://finance.yahoo.com/echarts?s=SSO+Interactive#symbol=SS...

Now go back futher (2006 when SSO was created (same chart).

Now they in fact have very similar returns because of how much SSO lost in 2008. If a person had instead sold some time prior to the bottom and bought back in, they would of course be significantly ahead today.

In summary, these can produce nice long(er) term returns but like with any investment, I would not advice holding onto it if the bottom is falling out. Everyone should determine a point where they should cut their losses, whether that be in a vanilla S&P or something more leveraged.

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Author: JLC Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74406 of 75528
Subject: Re: SSO for Long-Term ROTH Date: 3/5/2014 3:59 PM
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I'm fairly young at 28 so could take on some risk.

Funny thing about risk, everyone thinks they have high tolerance until they experience it. And your age indicates that you probably haven't been around (significant money wise) to live through a downturn.

You still get in the Hall of Fame with a bunch of singles and doubles. You don't have to hit home runs.

JLC

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Author: jgc123 Big gold star, 5000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74407 of 75528
Subject: Re: SSO for Long-Term ROTH Date: 3/5/2014 4:15 PM
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I say go ahead. You are young enough to lose the money, feel the pain, recover, and appreciate the importance of managing risk the next time around.

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Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74408 of 75528
Subject: Re: SSO for Long-Term ROTH Date: 3/5/2014 4:55 PM
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That is on a daily basis only. This means that over the long term, you will have the same performance as the S&P 500. Twice up and twice down gets you to the same spot.

Well, no. That bit about "daily" is them in a non-alarming way saying the equivalent of "that girl you are talking to is the girlfriend of José (for us old-timers who remember the song -- http://www.youtube.com/watch?v=bu9ZepcV0CM ).

Daily rebalancing means that the asymmetric returns work against you.

From the prospectus:
"Because of daily rebalancing and the compounding of each
day’s return over time, the return of the Fund for periods longer
than a single day will be the result of each day’s returns
compounded over the period, which will very likely differ from
two times (2x) the return of the Index over the same period
.

"The Fund will lose money if the level of the Index is flat over time,
and it is possible that the Fund will lose money over time even if
the level of the Index rises
, as a result of daily rebalancing, the
Index’s volatility and the effects of compounding."

I have to admit, these things are so complicated that I have to study and study to understand what the problems are, and then I finally get it. But a week later I no longer understand it and it seems all good again, so I have to study & study it again and then finally understand it again. But in a week I've lost that understanding again. Bummer.

So I finally put them on my list of "things that sound good on the surface but are really really bad and you'll never understand them, so just run away, m'kay?"


These funds can be traded profitably, .... Just be in the long fund when the market is going up and in the inverse fund when the market is going down.

Ha! Why did I never think of that!!?? ;:facepalm:: ;-)

Did you forget to put in a smiley?

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Author: namkato Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74410 of 75528
Subject: Re: SSO for Long-Term ROTH Date: 3/6/2014 1:52 AM
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It took me a decade to recover mentally from my losses in 2000 / 2001.
================================================================

You also said you went heavily goldbug survivalist after the 2008 crash, and that it was a big mistake. Yes. I agree. It was.

The dotcom bubble, the housing bubble, and the PM bubble are the kind of groupthink situations that I warn people about. Following false gods such as Mish is a perfect example of how people set themselves up. People do not like to hear it. Human nature being what it is.

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Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74411 of 75528
Subject: Re: SSO for Long-Term ROTH Date: 3/6/2014 7:06 AM
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The dotcom bubble, the housing bubble, and the PM bubble are the kind of groupthink situations that I warn people about.

This is precisely what gives me qualms over index funds. I don't want my returns to be dictated by groupthink.

I still find myself rebelling against the conventional wisdom of the FP we use, even with his good returns. Though my way of investing certainly had volatility, we never experienced the large downdrafts when the market went down in general. I am not much for convention, but DH is, and there is something to be said for the relative calm he has felt since I gave up our investments. I guess that's worth a lot right there, particularly as we need to focus less on growing our assets now than keeping them.

IP

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Author: PSUEngineer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74413 of 75528
Subject: Re: SSO for Long-Term ROTH Date: 3/6/2014 9:21 AM
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I guess that's worth a lot right there, particularly as we need to focus less on growing our assets now than keeping them.

I think you posted that you are 52. You may live for another 40 years. I think you need to focus on both.

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Author: spacebound11 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74414 of 75528
Subject: Re: SSO for Long-Term ROTH Date: 3/6/2014 10:05 AM
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Well it seems Leverage ETFs are something of a sore spot for some. I would agree with most of you in that I can simply invest in index funds and well off companies and ride the market for 40 years to hopefully a healthy and substantial retirement. I was just curious about what you Fools thought. Thank you for your input. I have read numerous posts and several articles and most preach having nothing to do with them. I'm going to get into a S&P 500 index for my roth and do my best to max it out per the TMF recommendation. I'm just wanting to get started the best I can. Being in the military, there are no matching investing programs to dump money into. Also, if I'm lucky, the airlines normally don't offer any retirement package either. So again thanks to everyone for their input. I'm sure these funds do have a use in some aspects but I'll choose the time tested route.

-Brandon

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Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74415 of 75528
Subject: Re: SSO for Long-Term ROTH Date: 3/6/2014 10:36 AM
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I think you posted that you are 52. You may live for another 40 years. I think you need to focus on both.

We have a 2% withdrawal rate anticipated. Our FP has told us that we will leave more to the kids than we start with at these rates of investment and spending. The investment rate is conservative compared to my previous style, but not in cash. It's all relative.

IP

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Author: buzman Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74416 of 75528
Subject: Re: SSO for Long-Term ROTH Date: 3/6/2014 10:46 AM
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>>>>Being in the military, there are no matching investing programs to dump money into<<<<

Well true but the Thrift Savings Plan has annual costs 1%-2.5% lower than most 401K plans with better options also.

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Author: spacebound11 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74417 of 75528
Subject: Re: SSO for Long-Term ROTH Date: 3/6/2014 11:55 AM
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buzman,
That is true. However, without the matching part of it, wouldn't it be more prudent to put those funds into a ROTH IRA where I choose just about any fund I want?

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Author: buzman Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74418 of 75528
Subject: Re: SSO for Long-Term ROTH Date: 3/6/2014 1:17 PM
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Why not both? Roths are limited to 5.5K

First of all the TSP has

C Fund - tracks SPY

I Fund- tracks EFA

S Fund- tracks Russell 2000

You have three low cost index funds and they are hard to beat.

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