February 19, 2020
Leveraged and inverse funds are an important investment tool. They offer investors the ability to: 1. increase investment returns, 2. decrease investment risk, 3. conserve investment cash and, 4. do so in a cost-effective manner.
During a market uptrend, I can invest 20% of my account in a 2X leveraged SP 500 portfolio...effectively giving me 40% exposure to the SP. At the same time, I can maintain a 20% cash holding, allowing me to take advantage of other opportunities without having to sell any holdings.
When the market is in a downtrend, I can use an inverse portfolio to hedge against downside risk...without having to sell long-term holdings. This reduces risk and taxes.
Finally, utilizing ETFs to accomplish these goals simplifies the investment process. I don't have to sell securities short. I don't have to open a margin account. I don't have to invest in complex options strategies. ETFs provide a low-cost vehicle to help me accomplish these in a very straightforward manner.
Limiting my ability to invest in leveraged and inverse investment vehicles would be harmful to me and millions of individual investors across the country.