Your Survival Guy eschews leverage. For an example why, look at the math of a hypothetical 2x daily leverage ETF which seeks to double the daily returns of a stock. Jack Pitcher explains in the WSJ:
Take a hypothetical stock and a 2x daily leveraged ETF that tracks it, for example. Imagine both the stock and the leveraged fund begin the week with a share price of $10. If the shares fall 30% on Monday, the 2x ETF tracking them will fall 60% to close at $4.
If the stock roars back with a 50% gain on Tuesday, it is now up on the week, trading at $10.50. But even though the 2x ETF would have doubled the shares’ Tuesday performance, rising 100%, the ETF is only back to $8, and is now trailing its underlying asset on the week.
Action Line: Remember, leverage cuts both ways, and it can be devastating. When you want to develop your investment plan, email me at ejsmith@yoursurvivalguy.com.
