If you’re doing daily rebalancing, it’s going to be a bit of work for a buy/hold portfolio, it can be automated but at this point why not use something like futures? (that you also need to rollover and keep cash aside)
(and I think you’d also need to have your cash invested at the risk free rate, so not just sitting as cash at IB)
edit: SPYQ is probably a better idea if done with ETFs, it rebalances quarterly (but TER is fairly high)
You could use UPRO to aim for 1.2x leverage and rebalance between 1.1-1.3x.
The daily rebalancing was just an example to illustrate my point.
Something like UPRO can be used to get simple leverage in your portfolio.
Another example:
You want to slightly lever a mcw world portfolio to 120%.
100% could be 60/40 VTI/VXUS
120% you could do with 10/52/48 UPRO/VTI/VXUS
You don‘t need to daily rebalance (and you shouldnt due to cost), to get close to what you want to achieve.
I agree though futures are better, because they are cheaper, but also a huge headache.
But if you hold UPRO is a volatile environment then it’s just adding a drag to the portfolio because of how it’s structured
Maybe better to take a margin loan and then buy more VTI
Maybe same effect, but completely different feeling.
If anyone buying these is aware of this fact then they should manage expectations, but this doesn’t mean they can’t be held long term.
Again depending how you structure your portfolio and how you rebalance it.
The 50/50 SSO/Cash example was to show that
1/3 UPRO + 2/3 cash rebalanced daily, match VOO unlevered basically perfectly.
(adjusted for cost of financing/TER, that create a drag)
https://testfol.io/?s=dYN5F6AOqbF
This route can make more sense. But what happens if you dont rebalance (and thus selling on the way down, just like the daily levered funds do) to match your desired leverage is, that the leverage goes higher and higher the more it goes into drawdown. This then increases your risk and you are betting on mean reversion there. Which you can do (it worked in the past), but you need to be aware of that and most people aren’t. You are actively letting the leverage ratio drift higher.
Also another problem with a margin loan is the high financing cost (benchmark +1.5%), and if you deduct this from taxes, you’ll have a lower DA-1 return, as that offsets it (super weird ruling on that in my opinion).
You could also use VTI LEAPS, probably cheaper than UPRO and don’t suffer from volatility.
