Portfolio allocation % to the 2x US Markets Strategy

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    I remember Frank mentioned before that given the volatility of the 3x strategy, one should allocate no more than 15-20% of portfolio to that strategy. With this 2x strategy, what would be the % cap you would use in a portfolio as a generic guide.


    I’m already a big fan of this new 2x Market Strategy. I’ve been a loyal follower of the 3x version since 2015 and have had a wonderful run with it. The 2x version seems to come with even less risk and barring my 10 day cash hoard back in March, I have been 100% invested since 2015. Yeah, I’ve been a rebel and the gains have crushed the market. The reason I’m 100% all in is because I’m playing with house money and I chop gains monthly into a cash account thats building beautifully.

    But, for those with less risk tolerance, I think 40 to 50% allocation would be the way to go with 2x version.

    As always, with any investment strategy comes risk, so invest wisely and to your tolerance level which LI has many to choose from.


    max 50% is a good investment. As this strategy can invest a max. of 60% in equity, like this your maximum loss on the equity side would be 30% of your capital if an index would go to zero. This would be a safer way to invest than investing 100% in the unleveraged US Market strategy.


    How can you find out what the maximum % a strategy will invest in each component that makes up the strategy? As you mentioned above, the max the US Market x2 strategy will invest in equity is 60%. Where is that information given for each strategy? Thanks.


    I think the team posts it in the strategy release notes or you can see it in QuantTrader


    But right now the aggressive core portfolio have 87% is using leverage.
    Wouldn’t it be too much?

    If something go wrong, we will lose all those 87% right?


    You cannot calculate like that because the two strategies making the 87% also have always a 40% Hedge but they are 2x leveraged. So, you cannot really say how much you can lose. All together there is about 50% of this strategy in equity which you will lose if the market goes down 50%. The rest is in Treasuries and Gold which should go up in a market correction.


    Thanks for the reply Frank~
    Just want to know if the leveraged ETF will go to 0 in certain situation, because it is leveraged?


    All leveraged ETFs have the risk to go to zero if the tracking index falls more than 30% in one day for 3x funds or 45% for 2x funds.

    So, if you ever think the underlying fund can drop that much in one day, then avoid them.

    For instance, TQQQ is a 3x leverage fund over QQQ (the NASDAQ 100). If QQQ were to drop 30% in one day, then TQQQ would drop 90% and basically be obliterated. The only day in the past few decades that might have occurred was Black Monday in October, 1987, when the DOW Jones fell 25% in one trading day.

    Honestly, I feel that will never happen again because of all the circuit breakers in place now. However, imagine a 15% daily decline over the course of a few days. That wouldn’t kill the 3x leverage, but it would do some major damage.

    The key with 3x funds is to never buy and hold them forever. They are best for rotation strategies and one should never ever be emotionally attached to were one never wants to sell. They are dangerous but very rewarding plays when you follow the rules and sell when appropriate.

    A few years ago XIV fell to near 0. Google that fund and you will get details how many people suffered great losses on a fund that seem to always go higher, until it didn’t.


    The good thing is that by investing for example $33,000 in the 3x leveraged TQQQ you have the same exposure as investing $100,000 in QQQ. However, in the case of a really bad “black swan” event like a nuclear bomb exploding you only risk these $33,000 while with QQQ you have $100,000 at risk.
    Leveraged strategies are a good way to limit your risk if you keep the other part in cash.

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