I was curious about leveraged ETFs and so I did a simple simulation. To my genuine surprise, an S&P500 index ETF almost always outperformed a 2x leveraged index which almost always beat a 3x leveraged index over a 10- and 20 year horizon.
This seems counter intuitive to me. My intuition says that if the index fund averages a 9% return yoy over the past few decades, a 2x leveraged index fund would return 18% and 3x 27%.
Does anyone have an clear explanation of the underlying math here? My brain can't quite understand it. Is it maybe related to the fact that N+10%-10%=.99N? That sort of seems to baffle me too. (I should possibly point out that I'm not an idiot -- I've taken many semesters of calc, advanced stats, etc).
Submitted May 12, 2018 at 12:05PM by mettle https://ift.tt/2rD4ZLA
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