May 11, 2020
Dear SEC:
The above-referenced proposed regulation is a very bad idea.
To begin, it is important to keep in mind that each leveraged or inverse fund has a prospectus to acquait investors with the risks of purchasing the funds. The proposed regulation therefore assumes that investors will not do their own homework (e.g., investment newspapers, investment books, etc.) to gain that understanding, investors will not seek financial advisor help to understand, or investors are incapable of understanding what a prospectus says about such funds. It should come as no surprise if all three assumptions are bad. Rather than assume, the SEC ought to first conduct a study to determine whether there is a problem to be solved.
Second, the proposed regulation sends the wrong message to individual investors. For many of them, stock market investing is a cornerstone of their plan for achieving a sense of financial freedom. Because a leveraged or inverse fund can help enhance returns toward building wealth, the SEC should be reluctant to introduce a regulation limiting investor choice that might be weaponized or abused by bad actors to screen out or trip up minority or other investors from freely pursuing investment goals and plans. Instead of setting this dangerous precedent, the SEC can better serve individual investors by producing webinars and advertisements on leveraged and inverse funds, including with respect to price alerts, limit orders and hedging strategies.
Lastly, investors are smarter than the SEC thinks. I have experienced gains and losses with leveraged and inverse funds. I understood the risk each step of the way and how to protect my investment portfolio in the process. This risk was not lost on my eighteeen-year old son either. Last year I shared with him many of the stock investing lessons I learned over the years. Leveraged funds were discussed, and he expressed that those funds were beyond his risk tolerance. He did not want to put the money he earned or received as gifts at risk in that way. The takeway is that it is incorrect to not assume that investors can only appreciate the risk of leveraged and inverse funds when it is too late.
Regards,
George W. Jordan III, Esq.
Individual Investor