Chapter 78 [Risks and Allocation of Investment in Leveraged Funds]

Source:[https://www.facebook.com/100063294665283/posts/727519556034527/?mibextid=cr9u03](https://www.facebook.com/California.Life.Enrichment.Club/posts/pfbid02EjqYqADVmxXjn76qNA35cJ3Y4dsjnfjpghbKcGSUFVBafFE51VwDxaNDCWQemdJbl?

cft%5b0%5d=AZaWxZuJnPs8NEYxZzyxAwYI9NwXWHPTZ-20cxzUrLOFrZEfuaBlw1QiHfV2bKKoF80FfxeDN71ONd7WHym8caml4pT_niZmQc8wNiSkUX9W4RDwIEGG3xJXsBBv-WULg3SqqVFxIe4H6kY1D9MkJIZEQ6NiTQtVN6nbNa3KnnrnRg&tn=-UK-R)

[James’ Origin and Today] Chapter 78 - [Risks and Allocation of Investing in Leveraged Funds] (10/31/2023)

We recommend that everyone must keep a living reserve. When we retain a living reserve, some active investors think that this will reduce the investment position. In order to increase the investment position, they can consider investing a small amount of funds in twice-leveraged funds.

• However, it is clearly stated at the outset that "it is not recommended that you invest in leveraged funds." Index funds with twice the leverage will fall quickly and violently. Triple leverage funds prohibit all investors from investing.

• QQQ fell 37.78% in 2022 (00662 fell 24%) QLD fell 65.11% TQQQ fell 79%

• If you are unable to identify market cycles and reduce leveraged funds when the market is extremely optimistic at high points to avoid the risk of a rapid market decline, you are not suitable for investing in leveraged funds. (Because in a situation of rapid decline, ordinary investors cannot bear it and will definitely sell at a low point and exit with a loss. Investors who have not experienced it should not be too overconfident).

• If you are an active investor who invests in the twice leveraged fund QLD (Taiwan Investor 00670L), you must be careful to "keep enough emergency cash aside" before you consider investing in leveraged funds.

• Invest up to 20% of investable liquid assets Purchase twice as much 00670L (QLD).

• The average person cannot bear the pressure of a sharp and rapid decline in leveraged funds. I still do not recommend ordinary investors to invest in leveraged funds.

Active investors can consider a small portion (no more than 20% of investable liquid assets should be invested in QQQ’s twice-leveraged fund QLD or SPY’s twice-leveraged fund SSO). Generally conservative investors do not recommend investing in leveraged funds (because ordinary investors cannot bear the rapid decline and will definitely sell at low points and exit with losses. Investors who have not experienced it should not be overconfident).

Possible investment positions for an active investor might be as follows:

Be sure to keep an emergency fund in cash (three years of living expenses; at least half a year of living expenses for working people).

QLD The maximum cannot be higher than 20% of investable liquid assets

The rest is invested in general funds (QQQ+SPY)

This can be achieved by retaining emergency cash, but also increases the actual investment position due to leveraged funds.

Risk differences between twice leveraged funds and triple leveraged funds

If we take the capital allocation of "cash 20%; leveraged funds 20%; general index funds 60%" as an example:

If you allocate 1 million to a 20% leveraged fund, when the market falls by 30%, your 20% will fall by 60%. That’s $200,000, a loss of $120,000. This will cause your assets to fall by 12%, plus 60% of the index assets to fall by 18%, and the total assets will fall by a total of 30% (the same amplitude (beta) as if the market is 100% invested without leaving any cash; while holding a small portion of leveraged funds, you can have an additional 20% as emergency cash).

Allocate 1 million to a 20% triple leverage fund. When the market drops by 30%, your triple leverage fund drops by 90%, and $200,000 becomes only $20,000, resulting in an asset loss of 18%. In addition, 60% of the general index fund drops by 30%, resulting in an asset loss of 18%. Your total asset loss is 36%.

Therefore, when buying a leveraged fund, if the cash position is 20%, the leveraged fund position is 20%, and the general fund position is 60%

Market down 30%

Buy 20% twice the total assets that fall by 30% (it returns to the high point faster when the market rises).

Buy 20% three times the total assets fell by 36% (when assets rise and rebound, it takes a slower time to return to the high point).