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You wrote, But what I see you guys missing is;
Im using funds not stocks. Funds are less volatile then stocks.

A patently false statement, if I ever heard one.

Some funds are more volatile than some stocks. Do a stock screen for a beta < 1.0; the result are stocks that are less volatile than the market as a whole. The Yahoo Stock Screener lists 3478 securities that fit this selection criteria. This includes the S&P500 index ETF SPY, which has a beta of 0.99. Most of those 3478 issues are less volatile than the S&P 500.

Also, I'll be holding a couple funds in the leveraged position instead of just one as I had planned. Due to volatility factors and it is harder to make two funds tank then it is to make one tank.

Another patently false statement. Or did you completely miss the 2008 credit crisis? Pretty much everything tanked - even bonds. Only the gold buffs and holders of cash or Treasuries were sitting pretty.

Also stock fund performance tends to be highly correlated. Just pull up any two stock funds and show them on a comparison graph for the past 10 years. You'll be surprised by how most of their movements look very similar and they only diverge over time. In fact many stock funds have many of the same holdings. But in any case, diversification can only save you a certain amount here. Ultimately there are common systemic risks built into most investment categories.

Finally, as per using option's, I like how you can hedge risk with them and it is sorta like leveraging but not quite. ...

Actually options [and insurance] are exactly like using margin. There is no practical difference. Options like insurance can be used to hedge [limit] your risk; they can also be used to lever-up your risk. A hedge is simply an option bet in the opposite direction of an existing position; a bet in the same direction produces leverage. With margin you can do much the same. If you bet with a position, you buy more than you could have purchased with cash on-hand. Betting against a position with margin is called shorting.

- Joel
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