I read an article called "3 of the worst ETF's for long term investors" and it says SPXL is one of them.

The reason it gives is:

"If the S&P 500 consistently goes up over time, the SPXL will perform well. It has been excellent during the extended bull market. But when the market goes sideways, the SPXL hemorrhages value. And of course, if the S&P 500 crashes 34% during the next recession, we all know what 34% times three is. "

So they are implying that if the S&P drops 34% then SPXL will drop 100%.

But when I look at the charts for SPXL, SOXL, etc, it seems that pretty much anywhere on the chart, if I bought then, and held long, any losses would have eventually been recovered. Looking at SOXL, even at the peaks before a drop (such as when Trump started his China war BS) on SOXL, where it reached near $200/share prices, then dropped to $70/share around xmas 2018, it eventually recovered.

I know SOXL is a bit trickier because it relies heavily on China, but that's why I am asking about SPXL instead.

Historically, the S&P always recovers: Historical S&P Chart

Unless there is some huge extinction level event, it is a pretty safe bet that the S&P 500 index will recover regardless of how low it drops.

All the articles I have read that talk about leveraged ETF's getting wiped out are always hypothetical.

Can anyone give me examples of a leveraged ETF that failed over a period of time, whilst the underlying index, over that same period of time, did not?

I am trying to visualize what would have to happen to cause a long position in SPXL to be "wiped out" completely if I have the patience to wait for the index to recover.

Admittedly I am new to the market and whatnot, but I'm still not seeing why SPXL is a bad long term buy.

Thank you!

  • I'm not aware of one for the S&P. I don't think they have been around long enough. JTP answered your visualization question in his answer to this question here: money.stackexchange.com/questions/11637/… – RWP - Down by the Bay Mar 18 '20 at 12:39
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    They are confusing "three times the daily performance" with "three times the cumulative performance". "if the S&P 500 crashes 34% during the next recession" the value of the leveraged position will not go down 102%. Only if it crashes 34% in one day. – Ben Voigt Mar 18 '20 at 17:10
  • see also money.stackexchange.com/q/69879/5458 – Ben Voigt Mar 18 '20 at 17:13
  • @BenVoigt thank you, that post is exactly what I was looking for. The problem with all these warnings is that they are hypothetical, and do not seem apparent when looking at recent charts, especially when many of these leveraged etfs only came into being after the start of the latest bull phase. – cds333 Mar 19 '20 at 16:05

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