Loss on US leveraged ETF; Don't live in US anymore

Question

I made an investing mistake many (eight?) years ago. Specifically, I invested a very large sum of money in a certain triple leveraged ETF (the asset has not yet been sold, but the value has decreased to maybe one 8th or 5th of the original amount). I thought the risk involved was the volatility--I didn't realize that due to the nature of the asset the value would be constantly decreasing towards zero!

Anyhow, my question is what to do next? The complicating factor is that I have since moved out of the United States and am living abroad (i.e. Japan). I am permanent resident of my host country, I have a steady salary that is paid by a company incorporated in my host country, and pay taxes to the host government. I file a tax return to the U.S. Government each year, but all my income is excluded so I do not pay any taxes. In this way, I do not think that I can write anything off on my U.S. tax return. Also, I have absolutely no idea if I would be able to write off any losses on my Japanese tax return (I've entrusted all the family tax issues to my wife). Would this be possible? Are there any other available options (that would not involve having to tell my wife about the loss, which would be inevitable if I were to go the tax write-off route in Japan)?

If I continue to hold onto this asset the value will decrease lower and lower. Any suggestions as to what to do?

Answer 1

I made an investing mistake many (eight?) years ago. Specifically, I invested a very large sum of money in a certain triple leveraged ETF (the asset has not yet been sold, but the value has decreased to maybe one 8th or 5th of the original amount). I thought the risk involved was the volatility--I didn't realize that due to the nature of the asset the value would be constantly decreasing towards zero!

Anyhow, my question is what to do next?

I would advise you to sell it ASAP. You didn't mention what ETF it is, but chances are you will continue to lose money.

The complicating factor is that I have since moved out of the United States and am living abroad (i.e. Japan). I am permanent resident of my host country, I have a steady salary that is paid by a company incorporated in my host country, and pay taxes to the host government. I file a tax return to the U.S. Government each year, but all my income is excluded so I do not pay any taxes. In this way, I do not think that I can write anything off on my U.S. tax return. Also, I have absolutely no idea if I would be able to write off any losses on my Japanese tax return (I've entrusted all the family tax issues to my wife). Would this be possible?

I can't answer this question but you seem to be looking for information on "cross-border tax harvesting". If Google doesn't yield useful results, I'd suggest you talk to an accountant who is familiar with the relevant tax codes.

Are there any other available options (that would not involve having to tell my wife about the loss, which would be inevitable if I were to go the tax write-off route in Japan)?

This is off topic but you should probably have an honest conversation with your wife regardless.

If I continue to hold onto this asset the value will decrease lower and lower. Any suggestions as to what to do?

See above: close your position ASAP

For more information on the pitfalls of leveraged ETFs (FINRA)

What happens if I hold longer than one trading day?

While there may be trading and hedging strategies that justify holding these investments longer than a day, buy-and-hold investors with an intermediate or long-term time horizon should carefully consider whether these ETFs are appropriate for their portfolio. As discussed above, because leveraged and inverse ETFs reset each day, their performance can quickly diverge from the performance of the underlying index or benchmark. In other words, it is possible that you could suffer significant losses even if the long-term performance of the index showed a gain.