Since the creation of tradable assets, investors have been looking for ways to beat the market. Well guess what- there is a way and it’s a lot easier to do than you think.
Just buy and hold TQQQ long term.
What is TQQQ?
TQQQ is a leveraged ETF that aims to triple the returns of QQQ. ProShares does this by using Nasdaq-100 Index swaps and margin to invest in all the same holdings as QQQ. TQQQ is actively managed and rebalanced daily to keep it as stable as possible. Buying TQQQ gives you three times the exposure to the top 100 companies listed on the Nasdaq exchange.
Simply put- TQQQ is like buying QQQ on steroids.
Why I Love Investing in TQQQ
I’m young, so I’m currently looking for growth, not the safest investments. Although we are deep into a decade-long bull run, I don’t see tech going anywhere. And even if tech loses steam, there will always be new market disruptors. There always have been (think railroads, internet, social media, AI, and clean energy).
I believe that you should be very aggressive with your investments while you’re young. Here are my top three reasons why:
- You’ll have way more time to recover from drawdowns, especially if you’re dollar-cost-averaging.
- Younger investors tend to have less responsibilities and can invest more money.
- There will always be new large cap growth stocks to replace the current winners.
If I’m in this for growth, I’m in this for growth. TQQQ can give me the growth I’m looking for.
TQQQ vs UPRO
TQQQ isn’t the only triple leveraged ETF. There’s one for the S&P 500 too. The most popular one is UPRO. It’s the same concept as TQQQ, just for the S&P 500.
Most people would opt for UPRO since you’re way more diversified with it. Being exposed to 500 of America’s top companies is way safer than being exposed to the top 100 large cap growth stocks.
But do you know what the major downside is to diversification?….
Lower returns!
Let’s be real, if you’re looking for safety- why are you even looking at triple leveraged ETFs?
This is just one of the many reasons why I buy and hold TQQQ long term. Now let’s look at the benefits of investing in TQQQ.
Benefits of Investing in TQQQ
There are tons of benefits of investing in TQQQ, but I want to take a dive into the two biggest benefits based on risk tolerance.
Going All-in with TQQQ for Maximum Returns
If you’re using an all-in strategy during a bull market, you’ll be getting astronomical returns compared to QQQ.
Just look at the 10 year difference between $10k invested in TQQQ compared to $10k invested in QQQ:
$1,105,900 vs $76,617. TQQQ would’ve made you 14x more money than QQQ over the last 10 years! The money you would’ve made would have you feeling like you won the lottery. This isn’t a small amount of money- it’s life changing for many people.
Using TQQQ to Minimize Risk
Believe it or not, you can use TQQQ to minimize your risk in the market. Yeah, you read that right. TQQQ can protect your money if you use it properly.
Here’s how:
You can use TQQQ to get the same portfolio exposure to QQQ, but with much less money at risk. Think about it, if TQQQ gives you 3x the returns of QQQ, then you would only need ⅓ the amount of money invested into TQQQ to get the same returns.
Here’s an example to help illustrate the idea:
Let’s say you have a $30,000 portfolio.
If you put that full $30,000 into QQQ and it rises 20%, your portfolio now has a total of $36,000. You made $6,000 by risking $30,000.
But if you only put $10,000 into TQQQ and it rises 60% (3x QQQ), your portfolio now has a total of $36,000. You made the same $6,000 profit, but only risked $10,000.
Here’s a look at how this TQQQ investing strategy would have performed with a $10,000 portfolio over the last 10 years:
Wow! Even with such a conservative approach you would’ve crushed it! Your final balance with TQQQ would’ve still been almost 5x your balance with QQQ.
This is perfect for the risk-averse investor or an investor who wants a ton of free capital to be able to average down in the event of a major market dip. Investing in TQQQ long term with this strategy could save a retirement portfolio and possibly enhance it.
In my opinion, this is the safest way to invest in TQQQ long term.
Sadly, every thing in the market has risks. I won’t be one-sided here, so let’s discuss the risks.
Risks of Holding TQQQ Long Term
The risks of holding TQQQ long term should be pretty obvious. TQQQ triples the returns of QQQ as it goes up, which means it also triples the returns of QQQ as it goes down.
Simple math can show us that a 33% drop of QQQ could result in a potential 99% loss for TQQQ. That implies that a ⅓ drop in QQQ could cause a TQQQ investor to lose their entire investment.
Sure, you could bag-hold and wait for the market to return to all-time highs. I mean, the market always does recover at some point. But that’s the market we are talking about; we have no clue what an ETF like TQQQ will do. Which leads me to my next risk factor-
We haven’t had a big enough market dip or long enough bear market to see what would happen to TQQQ. The two month bear market caused by Covid in 2020 was the biggest drop TQQQ has seen since the inception of the fund in 2010.
The fear created by Covid in 2020 caused QQQ to drop a total of -30.5%.
That led to TQQQ taking a massive hit and dropping -72.8%.
Wait a minute. Shouldn’t TQQQ have dropped -91.5%? -72.8% is not what you get when you multiply -30.5% by 3.
This interesting case shows us that TQQQ’s daily rebalancing may help TQQQ from imploding in the case of a bear market. But this is only speculation. A two month bear market is nothing compared to a 5-10 year long one. Besides, a -72.8% loss in two months is scary enough.
Not Enough Historical Data to Make Assumptions on TQQQ
TQQQ has only been around 2010. It hasn’t been around long enough to experience a true, multi-year bear market.
Optimized Portfolio ran a hypothetical back-test to see how an all TQQQ portfolio would’ve survived during some of the worst market declines. Their results weren’t too encouraging… An all TQQQ portfolio could decline to a point where it would take decades to breakeven. That’s also assuming that the fund even survives. If you’re interesting in viewing the full results, you can check it out here.
But the real issue is- who knows if the fund will be able to survive. They might run into severe issues and have to close down the fund. Not knowing if TQQQ will be able to survive as a fund is a huge risk all by itself.
Ultimately, the biggest risk of holding TQQQ long term is the possibility of losing your entire investment and in the case of the all-in investor, their entire portfolio!
Conclusion: Buy and Hold TQQQ Long Term RESPONSIBLY!
By now you should understand that buying and holding TQQQ long term is more than an issue of risk tolerance. It’s more so an issue of being able to tolerate a 100% loss.
I will never put 100% of my portfolio into TQQQ. The potential for astronomical returns is not worth the risk of losing everything.
But I do want to beat the market, so I risk about 50% of my portfolio on TQQQ. This lets me beat the market by significant margins on good years and it will keep me from losing everything during a bear market.
Again, my exposure to TQQQ is that high because I’m young and still very bullish on tech/large cap growth stocks. As the years go by and my portfolio grows, I will definitely lower my exposure to TQQQ and increase my exposure to QQQ (maybe even SPY too).
Ultimately, TQQQ is too good of an opportunity to pass up on when using it responsibly. And to invest in TQQQ responsibly, you just need to stay away from having your whole portfolio in it.
There you have it! Thanks for reading my reasons why I buy and hold TQQQ long term. Even if you don’t want to hold onto it long term, it’s a great candidate for the wheel strategy.