Leveraged ETFs Do Work. This One Turned $10K into $3.64m in 16 Years

On February 11, 2010, 2 days aft ProShares launched its triple-leveraged Nasdaq-100 fund, a stock of ProShares UltraPro QQQ (NASDAQ:TQQQ) closed astatine astir $0.21 connected a split-adjusted basis. As of today's adjacent close $71, that stock is worthy what you would expect a sixteen-year thrust connected a 3x regular leveraged tech handbasket to beryllium worthy if each azygous happening went right. A $10,000 involvement placed connected February 11, 2010 and near untouched is sitting astatine astir $3.64 million. The cumulative full instrumentality implicit that window, connected the ETF's ain terms feed, is 36,309.63%.

The fig is real. The question is whether it tells you thing utile astir what to bash tomorrow.

What the mathematics really says

Start with the boring comparison, due to the fact that it is the full communicative successful a sentence. Over the nonstop aforesaid window, the unleveraged Invesco QQQ Trust (NASDAQ:QQQ) returned ~1,500%, moving from astir $44 to $702. That is the underlying engine, the Nasdaq-100 itself, successful 1 of the astir generous stretches a US equity scale has ever delivered. TQQQ took that engine, geared it 3 times daily, and compounded the effect for sixteen years. Naive intuition says triple the return. Reality says thing overmuch weirder happens erstwhile you reset leverage each azygous time wrong a agelong uptrend with shallow drawdowns. You get a multiplier connected the multiplier.

Conventionally, the textbook informing connected regular leveraged ETFs is that they bleed successful choppy markets due to the fact that of volatility drag, the geometric taxation you wage erstwhile a 3% down time followed by a 3% up time nary longer gets you backmost to even. That informing is correct. It is besides wherefore TQQQ should not person worked. It worked anyhow due to the fact that the Nasdaq-100 from 2010 onward, with the little and convulsive exceptions of precocious 2018, March 2020, and 2022, behaved similar a low-volatility freight train. In that situation regular leverage stops draining and starts feeding connected itself. The aforesaid mechanics that destroys these funds successful sideways portion begins compounding successful the holder's favour successful a sustained directional regime. A 0.82% gross disbursal ratio sounds similar a batch until you retrieve what it was attached to.