How to Determine the Optimal Amount of Leverage for an ETF

3min Snip

00:00

Play full episode

Summary

Transcript

Episode notes

The article goes into the three reasons that a leveraged ETF may underperform its multiple of whatever it's tracking. The fees are generally close to 1% although they're getting less over time and certain funds like NTSX have fees that are down around 0.2. Another potential problem is tracking error that however they've constructed the leveragedETF it does not accurately track the index that it's supposed to be tracking. And the third one is called volatility drag which has to do with the fact that since they are much more volatile over long periods of time you have the same issue with looking at the arithmetic mean of say the S&P 500.

In this episode we answer emails from Pete, MyContactInfo and Jenzo. We discuss leveraged funds, a paper about holding them longer term and optimal leverage, analyzing leveraged portfolios, meta-concepts of retirement portfolio planning and how to separate the critical components of a withdrawal strategy (the dogs) from various management techniques, labeling methods and mental accounting (the tails), and last year's scare paper about hyper-low safe withdrawal rates of poorly constructed international portfolios.

Links:

Leveraged Portfolios Article/Paper: Double-Digit Numerics - Articles - The Big Myth about Leveraged ETFs (ddnum.com)

Sample Optimized Portfolios Article: What Is a Leveraged ETF and How Do They Work? (optimizedportfolio.com)

Analysis of UPRO vs S&P: https://tinyurl.com/me4c2xj9

Analysis of TNA vs. IWM: Backtest Portfolio Asset Allocation (portfoliovisualizer.com)

Analysis of TMF vs. TLT: Backtest Portfolio Asset Allocation (portfoliovisualizer.com)

Portfolio Charts Risk/Reward Calculator: RISK AND RETURN – Portfolio Charts

Portfolio Visualizer Efficient Frontier Tool: Efficient Frontier (portfoliovisualizer.com)

Bond Funds vs. Bond Ladders: Owning Individual Bonds vs. Owning a Bond Fund - A Wealth of Common Sense

Low Safe Withdrawal Rate Paper: delivery.php (ssrn.com)