Leveraged index funds

[TokyoBoglehead]

Holding leverage ETFs long term is generally considered an extremely risky strategy.

These products mostly exist for hedging purposes, in their prospectuses it is recommended you not hold them overnight.

I believe the are universally banned from NISA holdings?

https://www.etf.com/etf-education-cente ... by%202%25.

[adamu]

Leveraged funds are tools for betting on market behaviour. You want to get more return when the market moves according to your expectations, and pay with an equally high loss when you're wrong.

They are not suitable for buy-and-hold investments, which means putting them in a NISA is like aiming a gun at your foot when you're out of bandages.

[TokyoBoglehead]

Well, it’s a NISA compatible fund.
(Screenshot attached)
It’s not very highly leveraged and also hedges for currency fluctuations which is great, as it counteracts the currency risk with US stock investments.

I should have clarified I was referring to the New NISA that starts next year, but again, perhaps I am incorrect as the rules aren't crystal clear yet.

.....

Anyways 2 x leverage is not 3x, but it's still very high.

https://shintaro-money.com/ifreeleverage-sp500/

It is also very expensive. There is a newly listed 2x fund that only charges .4% vs 1.1%.

S&P 500 Futures 2X Leveraged Daily Index ER 2239


....

Anyways I would say don't do it personally, but if your 20-30 I can see the appeal. If your 30+ this seems a bit too eckless.

[TokyoWart]

The way those leverage funds work is to aim for that amount of return (e.g. 2x or 3x, either up or down) compared to their baseline index on a one day basis but they can't do that over longer periods. During periods of volatility they will deteriorate so that even if you bought the fund on (say) June 1, 2020 and the underlying index has an identical value on June 1, 2022, the leveraged fund will have lost money and the amont of loss increases if the intervening time period was very volatile. They are designed for short-term market hedging and are probably least well adapted for a long term retirement account holding.

[sutebayashi]

For a leveraged thing like this, I think I would prefer to use an outright margin trading account - like a CFD offering.

https://www.phillip.co.jp/cfd/lineup/
(Haven’t used this company, just looking)

As soon as you touch leverage it’s a speculative play, and speculative plays are probably gonna lose your money and cause you stress. I keep my long term investments and speculative stuff completely separate.
Maybe ETF based leveraged plays might offer better protections… although in Japan at least I believe the margin trading providers are regulated well to ensure customer funds are segregated appropriately in case the provider did go bust.

[IloveJapan]

I believe the new NISA from 2024 will exclude leveraged funds, unlike the existing one.
I think it is much better they are excluded, given that the NISA is intended to promote long-term investment in the economy and stock market.

[mighty58]

Not suited to NiSA investing (or any long-term investing for that matter) for precisely the reasons TokyoWart outlined. These are marked-to-market every day, and thus behave very differently than a regular investment. In other words, it's not simply the difference from Point A (the S&P 500 level on the day you bought) to Point B (the S&P level on the day you sell). It's the day-to-day volatility in between that will kill you, and you could lose a lot of money even if Point B is higher than Point A.