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I recently came across this 3x leveraged etf of the S&P 500 (NYSE:UPRO). I understand that it’s a risky investment, but I still see way more reason to buy it over any other thing that tracks the S&P 500. Since it’s 3x the S&P 500 (also 3x NYSE:IVV), then how about you throw a third of the money you normally would into it?

The Pros of NYSE:UPRO:

So,

  1. profit potential is the same AND
  2. investing in A allows us to spend leftover money on other things (less money at risk)

The Cons: Expense ratio seems to be the only reason not to buy (0.93% for NYSE:UPRO vs. 0.03% for NYSE:IVV) ok, this is a big difference... but even still, let’s account for the expense ratios. Similar to what I said before, we’re going to invest one-third (since it’s 3x the volatility) that of NYSE:IVV, so we’ll just say $10 for NYSE:UPRO vs $30 for NYSE:IVV. Well, our expense at the end of the year for UPRO would be 0.0093(10)=$0.093 and our expense for IVV would be 0.0003(30)=$0.009, meaning our expense for UPRO is just over 10x that of IVV assuming we spend 1/3 of what we would on IVV.

So,

  1. our expenses will be a bit over 10x larger

Even knowing this, the S&P 500 is almost guaranteed to increase in value in the long run, so NYSE:UPRO should be too, but 3x more! All we have to do to account for the larger expense ratio is (yes, go against what I said before) spend a bit more than a third of what we would on IVV.

Are there any other reasons that NYSE:IVV is a better investment? Yes, it’s less risky, but spending a bit over a third of what you would on IVV on UPRO allows you better profit potential, with slightly more risk. In the long run, I’d expect UPRO to be a far better investment that the S&P 500.

Also, is there any other etfs that multiply the S&P 500 by more than 3, (yes I know there’s NYSE:SPXU which is -3x, but I’m talking even more volatile)?

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  • @base64 sure does, thank you! – Cotton Headed Ninnymuggins Apr 20 at 2:33
  • @base64 also just noticed that August 18th is the first day that the S&P 500 closed above what it had pre-COVID, but for NYSE:UPRO, it was January 8th this year! That definitely goes to show what your link does. Makes total sense, I knew there was something “too good to be true” about UPRO! – Cotton Headed Ninnymuggins Apr 20 at 5:37
  • If you want other reset frequency, such as monthly, you can use MES futures product cmegroup.com/trading/equity-index/us-index/… Each contract is around USD 20,000, you can set aside USD 6,666 cash / bonds to achieve 3x leverage. It has no management fee. – base64 Apr 20 at 5:40
  • @base64 I don’t have enough $$$ for that, but that would be 3x leverage after a month then eh? Slightly longer term than UPRO? – Cotton Headed Ninnymuggins Apr 20 at 6:30