u/SpookyDaScary925

I've been using UPRO and SSO since 2024. I knew the expense ratios were high, and that the ETF providers have to pay slightly more than the overnight borrowing rate to get the exposure. But I always figured the cost is outweighed by the incredible returns. However, I wanted to see the math for myself - and it shocked me. Here's the annualized returns since 2006 of the S&P 500, $SSO, and a simulated $SSO that doesn't deal with any costs (pure 2X daily S&P 500).

SPY: 11.61% CAGR
SSO: 15.99% CAGR
Zero cost SSO: 19.95% CAGR

Looking closer, we see that the real world SSO has only provided about 35% of the CAGR increase that 2X daily provides. In the past 20 years, SSO holders have lost about 4% annually to the cost of capital/slippage and expense ratio. To me, that's ridiculous. I no longer think that doubling my volatility/risk/drawdowns for a potential marginal increase in CAGR is worth it. I'm blessed that I held SSO and UPRO from 2024 to today, but I can't justify it after learning this.

Furthermore, this example was from 2006 to 2026, when the average borrowing rate for SSO has been extremely low. Looking at a simulation from 1976-2026 (50 years), SSO holders would have lost about 6 to 7% annually compared to a pure 2X daily S&P 500 ETF. That's crazy.

The counterargument to my finding is this, in my opinion: Going from 50% stocks 50% cash to 100% stocks doubles an investor's risk/volatility. However, that investor only gained about a 30-50% increase in CAGR benefit. So you're only increasing your expected CAGR by 30-50% when going from 50% stocks to 100% but doubling risk. With SPY vs SSO, you are also doubling your risk, and your CAGR goes up by 30-50% as well. So if going from 50% stocks to 100% stocks is worth it (obviously, it is) then going from SPY to SSO must be worth it as well, right? I'm not convinced.

I got this idea to look at this from a "Rational Reminder" podcast with Ben Felix from PWL Capital. He interviewed professor Hank Bessembinder who studies LETFs. He wrote this paper: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5369417
The paper focuses on single stock LETFs, but the thesis holds true for LETFs that cover broad indices. The losses for index LETFs like SSO, UPRO, QLD, or TQQQ are much smaller than single stock LETFs, but they are still huge.

I got my numbers from testfol.io and their ? leverage tool. I tweaked testfol.io formula so that I could backtest a zero fee/cost simulated 2X S&P 500 ETF vs SSO.

What are your thoughts on all this? Am I wrong in some way? Were you already aware of this? Do you just not care?

If you’re running a 200D SMA strategy or some other price based, rules based strategy on the Nasdaq-100, S&P 500, or any other index - Is total return or price return best for generating trading signals?

Total return indices like SPXTR are indices that are just the underlying (SPX in this case) with dividends immediately reinvested. In SPX, whenever a company sends out a dividend, that company’s share price drops by the dividend amount. (Example: If Home Depot sends out a dividend of 1%, Home Depot’s stock price drops by 1% the same day.) SPX’s price then reflects that and drops by a very small amount. In total return indices like SPXTR, the index assumes reinvestment.

Price return ends up drifting artificially lower and will always have a lower drift than total return. In some indices like Brazil, the dividend is much higher, creating a huge difference between price and total return.

On the other hand, total return can be seen as drifting artificially higher because dividends should be ignored.

I can’t decide what’s better. I know that it doesn’t matter much, if at all. Backtests clearly show it doesn’t matter when you test over many periods and indices. But I need to decide on one.

Thoughts??

I did my entire time in the military overseas. I stayed in Germany when I got out a year ago. Next year, I’ll be moving back to California for the first time since... Well, a while.

Having lived overseas for many years, I’m not well versed with what companies/services/stores provide discounts stateside. What are your favorites or ones that I should check out? I’m 100% P&T, I’m not sure if that enables even more of them. Thanks and cheers🍻

Seeing that Micron, and semi conductors are going up rapidly, should I put my whole IRA into these? I'm very much so looking to participate in the AI buildout and the charts of these ETFs and companies look crazy.

This post is a joke. I made it to try and wake up some people about their mindset and investing. Now that semi's have gone vertical for 7 weeks, we are starting to see people FOMO into these vertical moves. I've been following r/LETFs for years now. I have seen this trend over and over. In case you are wondering if you should also swan dive into leveraged semi's, please consider the following examples:

1. Back in December and January, every other post was about leveraged gold or leveraged silver. Since then, both gold and silver have had huge pullbacks and then gone sideways from there. The result? Far fewer posts about leveraged gold and silver.

2. In late 2024, everyone was asking about leveraged crypto ETFs, debating between BITX and BITU. Some even talked about leveraged Microstrategy. Now, the leveraged crypto posts have all but disappeared.

3. The Nasdaq-100 (QQQ) has outperformed the S&P 500 pretty consistently for the past 15 years. Therefore, we see countless posts with some kind of TQQQ/QLD framing. I guarantee anyone reading this that If you swapped out QQQ and DIA's performance, most people would think that the Dow is some magical index that outperforms - just like QQQ. People would be trading and FOMOing into UDOW, the 3X DJIA ETF. Everyone knows the Dow is a stupid index. Price weighted? 30 stocks? Are you serious? But wait - the Nasdaq-100 doesn't make any sense either. 100 Stocks? Only one exchange, for no good reason? Excludes financials? You could make an index of stocks that only start with vowels and see it outperform for periods of time. Even the garbage Dow Jones has had decades where it outperformed the S&P 500 index.

4. From 1981 to 2021, global bond yields gradually decreased. The 10Y US Treasury yield went from a whopping 15% down to half a percent at the bottom. This was a 40 year bull market for bonds. In this period, when stock market earnings went down, it coincided with bonds rallying and central banks cutting rates. Due to recency bias, it was the common consensus among investors that bonds would rally when stocks declined, and vice versa. Therefore, HFEA was born. HFEA took the standard sharpe ratio-maxing of a 60/40 or 50/50 portfolio and put it on full blast. 3X equities and 3X bonds with UPRO and TMF. It sounded foolproof to countless Redditors. Of course, 2022 proved what was obvious to academics: The correlation of stocks and bonds ebs and flows, and there is nothing that says bonds must rally when stocks enter a bear market. Thus, HFEA and standard 50/50 portfolios got destroyed and people stopped posting about it.

leveraged Micron and semi's isn't the first, nor will it be the last. But all I ask of people reading this is to PLEASE ask yourself: If this strategy/ETF was in a 50-75% drawdown right now, would I still be considering this?

I’ve been using a 200D SMA strategy that switches between SPYM and UPRO based on SPXTR and its 200D SMA. I’ve been struggling for a couple years because all my backtests use the close as the signal AND the trading price. In the 2 years I’ve been using it, I missed the close and had to buy/sell at the next day’s open. (I could do post-market hours, but liquidity is worse.)

Is it better to just switch to close as the signal, then always trade at opens? What does Testfol.io use for this?

Thanks all