r/letfs
Levered QQQ/SPY
Author backtests 2x leveraged QQQ vs SPY for 20+ year DCA, favoring QLD despite drawdowns, while warning against leveraged SMH.
- Long-term DCA into 2x leveraged ETFs over 20+ years yields significantly stronger outcomes despite severe drawdowns.
- 2x leverage avoids the fatal 100% loss risk associated with 3x leverage during downturns.
- Leveraged ETFs suffer severe drawdowns which can be psychologically difficult to endure.
- Adding highly volatile sector ETFs like SMH to a leveraged portfolio can cause it to completely blow up.
So I’ve been thinking of adding a levered ETF to my portfolio.
I want to hold and DCA it over time and would therefore go with a 2x instead of a 3x to not suffer a fatal loss of 100% in a downturn.
My investment horizon is 20+ years so I am thinking of investing 3k a month.
While I’m obviously very well aware of the fact that past performance is no indicator for future returns we obviously don’t have any other indicators to test it.
I have portfolio back tested a mix of QQQ and SPY levered and unlevered and back tested for as far as possible (\~26 years). You would suffer severe drawdowns but would still have a way stronger outcome in the long term when DCAing over 20 years.
From the back testing I don’t see any particular reason from a volatility perspective why to add SPY instead of just going full QLD (2x QQQ).
Would love to hear your opinions:
https://testfol.io/?s=dOs7d3YR2r2
Just out of curiosity I’ve backtested one portfolio adding SMH which completely blew up obviously:
https://testfol.io/?s=1h9fqhZycsD
For TQQQ, lots of people use "9-sig", and some people rotate risk-on TQQQ / risk-off cash, around a 200 day QQQ SMA.
Anyone combine 9 sig and 200 day sma? Wonder if these are similar signals.
Good point - I’ll try not to touch it and would therefore go with QLD but and hold and might swing trade with QQQ
The issue isn’t just whether QLD won the historical backtest, it’s whether you have a rules-based plan you can stick to across different future economic regimes
Totally agree - Fortunately I am in a position to invest the amount on a monthly basis, so that should be covered.
Yeah, the monthly cash flow part definitely helps. What I meant is more about having the rules written down before the drawdown happens, like what % of the portfolio goes to QLD, whether you keep buying after a 50-70% drop, whether you rebalance, and what would make you change the strategy.
The risk with levered ETFs isn’t just affordability, it’s sticking to the plan when the backtest becomes real life.