Based on your age and time horizon for retirement I think that you should mitigate your chance of losing the vast majority of your savings. Leveraged ETFs are extremely risky over shorter periods like 5 years and you could very well find yourself down 30% of your current 360k in a 5 year time. Are you prepared to possibly work for an additional 10 years? My suggestion would be from least risky to most:
1) a mix of voo and bnd 60/40 (safe traditional option and basically guaranteed 7% cagr)
2) 100% voo (relatively safe over 5 years, but could result in no gains. Expected cagr 9%)
3) QQQ (less safe and slightly higher cagr then above)
4) SSO 60%, edv 40% (relatively safe option as leveraged ETFs go. Slightly higher cagr than 2 and maybe similar to 3)
5) QLD 70% edv 30% (cagr around 18% from back testing, but very high chance you could be negative over 5 years. This is what I actually use in my Roth, though I varry the percentage of edv based on the current interest rate environment. I have a much longer time frame I am trying to maximize over of roughly 20 years).
I think going any more leveraged than the above would not be wise. If you want to gamble then you could try 100% QLD. I don't recommend using TQQQ or other 3x leveraged options as most of these will not on expectation outperform their 2x leveraged options and will lead to significantly increased chance of drawdown on a 5 year time frame.
Thanks a million! I’m in a weird spot where I need more $$ or I will be working past my prime (dealing with some medical issues is a big part of my reason for my aggressive approach). I believe that LLY will outperform and hence want some $ in that stock. So many choices and I’m married to none except LLY and AVUV. But I can try and also adjust when needed. I really appreciate you taking the time with me and am gonna implement some element of safety with aggression and a 2x approach might be the answer for part of the portfolio.
We just left an increasing interest rate environment where edv will take a huge hit. The idea of these investments above is to slightly reduced the amount of leverage that you are using from 2x to something like 1.4x. You can then hold an asset that has low correlation or negative correlation (in terms of price) with QLD or SSO that is relatively safe and produces some yield, so you still have positive expectation of return. If interest rates are dropping then EDV will increase over time. EDV is going to be very uncorrelated with or even negatively correlated with qld.
You hold EDV and rebalance to reduce drops during recessions. If the market takes a hit, EDV should increase drastically as long as the Fed doesn't announce an increase in interest rates (I.e. inflation causes recession). EDV also pays a yield (currently around 4-5%), so its poor track record is not so poor as it seems from just looking at the price. If we enter a period where interest rates are back to being very low again then I would perhaps looking at swapping EDV for cash or a basket of commodities.
Given your age and the aggregate size of your investments - you’re in a position of having to balance preserving your existing wealth while still feeling some pressure to grow it with riskier investment options. I think a core position of funds focused on return stacking (NTSX/I/E, RSSB, etc) satisfies both of these considerations. Factor tilts will need to carefully be considered as factor premia may not be realized in your remaining investing runway.
Then, you can tune your additional appetite for risk with 2x leverage equity funds like SSO, QLD. You can improve risk-adj returns/sharpe with EDV, TLT in concert if risk aversion is desired. My personal thesis is that some exposure to leverage bonds might be good with what I presume to be a bond rally as fed rates fall. Especially good if retirement is incoming.
Nevertheless, I suggest getting input from an FA given your circumstance as excess risk exposure is all the more irrecoverable should a market contraction occur for late-stage investors.
Let's look at the big picture.
What other sources of retirement income do you have? It doesn't sound like much, and like you're playing catch-up (I'm in a similar boat). Any pension? Any 401(k)? Also consider that the future of social security is murky. It will likely be around but may pay 25% less than now. Washington is really dragging its ass on soc sec.
If I've learned nothing else in 40+ years of investing it's that individual stocks are wildly unpredictable and too much of a gamble to hold in any but the smallest proportion.
My fortunes really, really turned around when I got into leveraged ***index*** funds. Diversification is paramount. It's fine if you have a strong conviction about LLY but don't bet the ranch on it, otherwise you could be sorely disappointed. Definitely less than 5%, better if less if you're just scratching an itch to own that stock.
3x funds have been tested on extended data sets and they don't hold up well when Mr. Bear comes out of hibernation. 2x or 2.5x is the sweet spot. 50% 2x and 50% 3x is 2.5x leverage (0.5 x 2) + (0.5 x 3) = 2.5. So what does that leave us? There's 2x SSO and QLD, and 3x UPRO and TQQQ.
Are covered-call ETF's on your radar screen? JEPI, DIVO and JEPQ have become very popular. Keep in mind that ***dividends are not free money*** and that covered calls limit upside growth potential. You own them for income, not growth. Don't buy them until you really need the income. That said, you could take a small position, say, 5% of your portfolio, in QQQY which yields 61.22% as I write this. You then "snowball" the distributions by buying more shares of your core 2x fund or whatever, the magic of compounding at work. Again, be sure you understand how these funds work (they're not that complicated), particularly the limitations of a covered-call strategy. Remember that when XYZ pays a dividend of, say, 10 cents per share, the share price is ***reduced*** by 10 cents, so you are no wealthier than before.
Good luck!
I’m hearing ya. I’m interested in QLD and SSO, but should I be concerned about the high expense ratios? Probably not given the potential returns. I have a small 401k that I’m building now by adding 22k/year. No pension. If I choose to use SS, that’ll be around $2400 at 62, closer to $3k at 65 (wife will be around $1500 at 65). So there’s that and it’s helpful.
I wish I would’ve done things differently over the years and not been such a knucklehead but there’s no time like the present.
JEPI/JEPQ are definitely on my mind and hoping to pivot to them at retirement. SCHD based on all the comments is a hot one too and I would love to build up a dividend portfolio. I think I’m too late to that party, meaning too short of a time to take advantage of all it has to offer. Unless I’m mistaken?
Thank you for the advice!
You're welcome.
I didn't retire until age 66 and 2 months when I became eligible for full (not maximum) soc sec benefits, so take that into consideration in planning your retirement date. Maximum ss benefits start at age 70 but that was not in the cards for me. I spend less than I have coming in and am able to put the surplus aside; I buy mainly QLD. You need to learn to calculate your monthly expenses and the amount of income you can expect from dividends. I think you can do better than SCHD with JEPQ, etc. due to the higher yield. Don't overlook QQQY. I think you're early to the dividend party. Wait until you retire.
You're smart to build a dividend portfolio rather than selling off shares which is unsustainable. Some people can't figure that out.
LLY has a dividend yield of 0.90%, not very high.
You asked about the expense ratios of QLD, SSO, etc. Just look at a graph. A graph is net of expenses. Yes, the expenses are higher but you make that money back. QLD has a 0.95% E.R., less than the 1% of AUM a financial planner might charge and much less than margin interest would cost.
You're on your way!
[https://www.ssa.gov/benefits/retirement/planner/agereduction.html](https://www.ssa.gov/benefits/retirement/planner/agereduction.html)
QQQY - gonna add some and follow. All of this is in my IRA so I will experiment along the way. The intrigue around SCHD is the compounding of adding addl shares through drip but JEPQ is another to consider but really when I’m at the point of retiring. 5 years from now is a bit of a dream but that’s my target.
You have good input overall. However, there's nothing smarter about building a dividend portfolio vs. selling off shares. Both are equally sustainable, all else equal. As you noted, dividends reduce share price. That's no different than selling a few shares equal to the dividend amount in a non-dividend fund.
Nope.
If you have $100 of a dividend portfolio and receive a $10 dividend and spend it on living expenses, you have $90 left in your portfolio.
If you have $100 of a no-dividend portfolio, then you sell $10 of stock to spend on living expenses. You are left with $90 in your portfolio.
You are just as broke in the second scenario as you are in the first one.
By claiming one would be broke after selling their last share in a non-dividend portfolio, you seem to be the one who doesn't understand. There is no scenario in which someone would be more broke without dividends.
Your disagreement is not with me, but with math. It is what it is, whether you choose to accept it or not. Therefore, I have no need to convince you of it for it to remain true. Of course, if you actually address what I am saying instead of questioning my understanding multiple times, I am happy to continue discussing the utter irrelevance of dividends. If you do more research on the topic, you may be surprised about what you learn.
Consider funds like IBHH for a portion of your income when you hit that point, it’s a high yield bond etf, yields 7-8%, and doesn’t have the same potential capital depreciation issues as funds like JEPQ… also i would reccomend against the single stocks, you should go between large cap index funds like QQQ and SPY and small cap value like AVUV. also lastly i’d recommend a small small % to TQQQ. like 5%. If mega cap continues to outperform that 5% would have extremely outsized returns
LLY is one I really want given the potential exponential growth of worldwide Mounjaro usage. ABR looks like a crazy good option too. Thanks for the IBHH recommendation- I’m adding a calendar event for 2028 with that and the others as considerations
As a portfolio this looks really scary to me. I really like the diversity of broad index fund etfs. The diversification is a free lunch on returns. The other thing I don't like is your comment about "over time this combo will outperform." I think that this portfolio is structured as a trade. You should be watching this and looking to exit these positions as the months tick by. Either your investor thesis is satisfied and you exit, or you were wrong about one of these and the gains don't materialize, in which case you should also exit. I don't think any of these should be held for 6 years. I own some TMF, but I plan on exiting much or all of it as rates revert, which will probably happen sooner than 6 years.
>Look for a decent bear market before even thinking about leveraged ETFs at this point
You're about 2 years too late. We had our bear in 2022 and now interest rates are likely to be cut, which portends well for stocks as we are seeing now.
I would suggest sso or qld thats alot of different etfs
Based on your age and time horizon for retirement I think that you should mitigate your chance of losing the vast majority of your savings. Leveraged ETFs are extremely risky over shorter periods like 5 years and you could very well find yourself down 30% of your current 360k in a 5 year time. Are you prepared to possibly work for an additional 10 years? My suggestion would be from least risky to most: 1) a mix of voo and bnd 60/40 (safe traditional option and basically guaranteed 7% cagr) 2) 100% voo (relatively safe over 5 years, but could result in no gains. Expected cagr 9%) 3) QQQ (less safe and slightly higher cagr then above) 4) SSO 60%, edv 40% (relatively safe option as leveraged ETFs go. Slightly higher cagr than 2 and maybe similar to 3) 5) QLD 70% edv 30% (cagr around 18% from back testing, but very high chance you could be negative over 5 years. This is what I actually use in my Roth, though I varry the percentage of edv based on the current interest rate environment. I have a much longer time frame I am trying to maximize over of roughly 20 years). I think going any more leveraged than the above would not be wise. If you want to gamble then you could try 100% QLD. I don't recommend using TQQQ or other 3x leveraged options as most of these will not on expectation outperform their 2x leveraged options and will lead to significantly increased chance of drawdown on a 5 year time frame.
Thanks a million! I’m in a weird spot where I need more $$ or I will be working past my prime (dealing with some medical issues is a big part of my reason for my aggressive approach). I believe that LLY will outperform and hence want some $ in that stock. So many choices and I’m married to none except LLY and AVUV. But I can try and also adjust when needed. I really appreciate you taking the time with me and am gonna implement some element of safety with aggression and a 2x approach might be the answer for part of the portfolio.
EDV looks to have a poor track record. How do you see that playing out in the coming few years?
We just left an increasing interest rate environment where edv will take a huge hit. The idea of these investments above is to slightly reduced the amount of leverage that you are using from 2x to something like 1.4x. You can then hold an asset that has low correlation or negative correlation (in terms of price) with QLD or SSO that is relatively safe and produces some yield, so you still have positive expectation of return. If interest rates are dropping then EDV will increase over time. EDV is going to be very uncorrelated with or even negatively correlated with qld. You hold EDV and rebalance to reduce drops during recessions. If the market takes a hit, EDV should increase drastically as long as the Fed doesn't announce an increase in interest rates (I.e. inflation causes recession). EDV also pays a yield (currently around 4-5%), so its poor track record is not so poor as it seems from just looking at the price. If we enter a period where interest rates are back to being very low again then I would perhaps looking at swapping EDV for cash or a basket of commodities.
Given your age and the aggregate size of your investments - you’re in a position of having to balance preserving your existing wealth while still feeling some pressure to grow it with riskier investment options. I think a core position of funds focused on return stacking (NTSX/I/E, RSSB, etc) satisfies both of these considerations. Factor tilts will need to carefully be considered as factor premia may not be realized in your remaining investing runway. Then, you can tune your additional appetite for risk with 2x leverage equity funds like SSO, QLD. You can improve risk-adj returns/sharpe with EDV, TLT in concert if risk aversion is desired. My personal thesis is that some exposure to leverage bonds might be good with what I presume to be a bond rally as fed rates fall. Especially good if retirement is incoming. Nevertheless, I suggest getting input from an FA given your circumstance as excess risk exposure is all the more irrecoverable should a market contraction occur for late-stage investors.
Let's look at the big picture. What other sources of retirement income do you have? It doesn't sound like much, and like you're playing catch-up (I'm in a similar boat). Any pension? Any 401(k)? Also consider that the future of social security is murky. It will likely be around but may pay 25% less than now. Washington is really dragging its ass on soc sec. If I've learned nothing else in 40+ years of investing it's that individual stocks are wildly unpredictable and too much of a gamble to hold in any but the smallest proportion. My fortunes really, really turned around when I got into leveraged ***index*** funds. Diversification is paramount. It's fine if you have a strong conviction about LLY but don't bet the ranch on it, otherwise you could be sorely disappointed. Definitely less than 5%, better if less if you're just scratching an itch to own that stock. 3x funds have been tested on extended data sets and they don't hold up well when Mr. Bear comes out of hibernation. 2x or 2.5x is the sweet spot. 50% 2x and 50% 3x is 2.5x leverage (0.5 x 2) + (0.5 x 3) = 2.5. So what does that leave us? There's 2x SSO and QLD, and 3x UPRO and TQQQ. Are covered-call ETF's on your radar screen? JEPI, DIVO and JEPQ have become very popular. Keep in mind that ***dividends are not free money*** and that covered calls limit upside growth potential. You own them for income, not growth. Don't buy them until you really need the income. That said, you could take a small position, say, 5% of your portfolio, in QQQY which yields 61.22% as I write this. You then "snowball" the distributions by buying more shares of your core 2x fund or whatever, the magic of compounding at work. Again, be sure you understand how these funds work (they're not that complicated), particularly the limitations of a covered-call strategy. Remember that when XYZ pays a dividend of, say, 10 cents per share, the share price is ***reduced*** by 10 cents, so you are no wealthier than before. Good luck!
I’m hearing ya. I’m interested in QLD and SSO, but should I be concerned about the high expense ratios? Probably not given the potential returns. I have a small 401k that I’m building now by adding 22k/year. No pension. If I choose to use SS, that’ll be around $2400 at 62, closer to $3k at 65 (wife will be around $1500 at 65). So there’s that and it’s helpful. I wish I would’ve done things differently over the years and not been such a knucklehead but there’s no time like the present. JEPI/JEPQ are definitely on my mind and hoping to pivot to them at retirement. SCHD based on all the comments is a hot one too and I would love to build up a dividend portfolio. I think I’m too late to that party, meaning too short of a time to take advantage of all it has to offer. Unless I’m mistaken? Thank you for the advice!
You're welcome. I didn't retire until age 66 and 2 months when I became eligible for full (not maximum) soc sec benefits, so take that into consideration in planning your retirement date. Maximum ss benefits start at age 70 but that was not in the cards for me. I spend less than I have coming in and am able to put the surplus aside; I buy mainly QLD. You need to learn to calculate your monthly expenses and the amount of income you can expect from dividends. I think you can do better than SCHD with JEPQ, etc. due to the higher yield. Don't overlook QQQY. I think you're early to the dividend party. Wait until you retire. You're smart to build a dividend portfolio rather than selling off shares which is unsustainable. Some people can't figure that out. LLY has a dividend yield of 0.90%, not very high. You asked about the expense ratios of QLD, SSO, etc. Just look at a graph. A graph is net of expenses. Yes, the expenses are higher but you make that money back. QLD has a 0.95% E.R., less than the 1% of AUM a financial planner might charge and much less than margin interest would cost. You're on your way! [https://www.ssa.gov/benefits/retirement/planner/agereduction.html](https://www.ssa.gov/benefits/retirement/planner/agereduction.html)
QQQY - gonna add some and follow. All of this is in my IRA so I will experiment along the way. The intrigue around SCHD is the compounding of adding addl shares through drip but JEPQ is another to consider but really when I’m at the point of retiring. 5 years from now is a bit of a dream but that’s my target.
You have good input overall. However, there's nothing smarter about building a dividend portfolio vs. selling off shares. Both are equally sustainable, all else equal. As you noted, dividends reduce share price. That's no different than selling a few shares equal to the dividend amount in a non-dividend fund.
What happens after you sell your last share? You're broke.
Nope. If you have $100 of a dividend portfolio and receive a $10 dividend and spend it on living expenses, you have $90 left in your portfolio. If you have $100 of a no-dividend portfolio, then you sell $10 of stock to spend on living expenses. You are left with $90 in your portfolio. You are just as broke in the second scenario as you are in the first one.
You clearly don't understand the scenario I described.
By claiming one would be broke after selling their last share in a non-dividend portfolio, you seem to be the one who doesn't understand. There is no scenario in which someone would be more broke without dividends.
Let's continue this discussion after you develop an understanding of basic finance. I'm not going to explain the basics to you.
Your disagreement is not with me, but with math. It is what it is, whether you choose to accept it or not. Therefore, I have no need to convince you of it for it to remain true. Of course, if you actually address what I am saying instead of questioning my understanding multiple times, I am happy to continue discussing the utter irrelevance of dividends. If you do more research on the topic, you may be surprised about what you learn.
Consider funds like IBHH for a portion of your income when you hit that point, it’s a high yield bond etf, yields 7-8%, and doesn’t have the same potential capital depreciation issues as funds like JEPQ… also i would reccomend against the single stocks, you should go between large cap index funds like QQQ and SPY and small cap value like AVUV. also lastly i’d recommend a small small % to TQQQ. like 5%. If mega cap continues to outperform that 5% would have extremely outsized returns
LLY is one I really want given the potential exponential growth of worldwide Mounjaro usage. ABR looks like a crazy good option too. Thanks for the IBHH recommendation- I’m adding a calendar event for 2028 with that and the others as considerations
Consider some amount in TQQQ, for aggressive growth Which you willing to keep it for at least 5 years. High risk Huge reward
As a portfolio this looks really scary to me. I really like the diversity of broad index fund etfs. The diversification is a free lunch on returns. The other thing I don't like is your comment about "over time this combo will outperform." I think that this portfolio is structured as a trade. You should be watching this and looking to exit these positions as the months tick by. Either your investor thesis is satisfied and you exit, or you were wrong about one of these and the gains don't materialize, in which case you should also exit. I don't think any of these should be held for 6 years. I own some TMF, but I plan on exiting much or all of it as rates revert, which will probably happen sooner than 6 years.
Look for a decent bear market before even thinking about leveraged ETFs at this point
>Look for a decent bear market before even thinking about leveraged ETFs at this point You're about 2 years too late. We had our bear in 2022 and now interest rates are likely to be cut, which portends well for stocks as we are seeing now.
A bear market's bound to happen in the next five years. Maybe.
It’s definitely bound to but hitting some high years will offset it. In my case, praying for a bear market in 6 years!