Is TQQQ the New Millionaire Maker?!? 3x ETFs - YouTube

Fifty Eight percent return a year. That  sounds silly doesn’t it? A ponzi scheme  

for sure. Right? What if I told you  

it’s possible. With an ETF. Of course it has  to be in tech. And leveraged tech at that.  

Allow me to introduce: TQQQ. I’m Skyler James,  welcome back to the channel. TQQQ is a leveraged  

3x bull ETF offering investors triple the  returns - up or down - of the Nasdaq 100.  

But what questions should investors  ask before jumping into this one?  

And is this ETF a big time buy? Or  a big time bubble about to pop?  

Just like ETFs you already own, leveraged ETFs  offer positive or negative returns to investors,  

but at two or three times the percent of  the underlying stocks. In the case of TQQQ,  

investors will see their capital move three  times as much as the underlying Nasdaq 100. 3x  

up, 3x down, each and every day. Over time, this  leverage can deliver gigantic outsized returns.  

It can also deliver financial ruin. The Nasdaq  100 has been one of the best performing indexes  

of the last decade, and surely is worthy  of holding using leverage, isn’t it?  

I’ve developed a framework of questions investors  should ask themselves before buying into leveraged  

ETFs. in the process of answering these questions,  you’re going to learn ALOT about the ETF itself,  

in this case TQQQ. This format will give you the  nuts and bolts of the investment, and hopefully  

by the end of this video, you - the investor,  will have a pretty good idea if leveraged ETF  

are part of your risk appetite or not. Kicking things off, the first question to be  

answered, does this sector have strong economic  headwinds or tailwinds? How are things looking  

on a macro level for the stocks inside TQQQ?  Let’s look at the performance first, like I said,  

it’s has generated north of fifty percent returns  annually, compounding, every year - for the last  

ten years. Things must be going prettttty  good on a macro level for the holdings to  

generate that kind of return. Right? Another way to evaluate the macro question, is to  

look at the recent performance of the underlying  ETF. That ETF is the Invesco QQQ Trust, which  

tracks the Nasdaq-100, and is also called “The  Q’s.” The Q’s have generated phenomenal returns  

in the last ten years, thanks in part to many  business’s growing reliance on technology.  

Remember that the three-up three-down volatility  of leveraged ETFs makes their long-term returns  

cloudier than an unleveraged ETF. Sometimes  the price action will be up and to the right,  

and sometimes it will be bouncing all over the  place. That’s part of the leveraged ETF ballgame.  

Remember in my U-Bot video, we saw that U-Bot -  a leveraged robotics ETF - has UNDER-performed  

its unleveraged counterpart - the BOTZ ETF. So  it's always a smart idea to check both leveraged  

and unleveraged performance before  answering the macro question.  

To roundout the macro analysis, let’s look at the  top ten holdings and maki a ballpark judgement.  

I know it sounds silly, you’re thinking, it’s  the Nasdaq stupid. But seriously are we cool  

with it’s top top 10. 53% of The Q’s is the likes  of Adobe, Google, Amazon and Tesla. So yeah,  

the top ten of the Q’s and therefore of TQQQ  are big-time tech titans, with enough weight  

allocated to them inside this ETF that they can  steer the whole fund with their performance.  

So take a look at those big hitters and make  sure you want extra exposure to them.  

Here’s an example of a bad top ten, and a bad  candidate for a leveraged ETF. The ETF is QQEW,  

and it’s a billion dollar ETF from First Trust.  QQEW gives investors an equal-weighted approach  

to those same Nasdaq 100 stocks. But look at  this top ten! Marriot? Dollartree? Both QQEW  

and The Q’s track the Nasdaq 100 right?  Fundamentally the same stocks. But by using a  

market-cap-weighted approach, Dollar Store  stays in the strip mall while the tech  

titans steer us toward outsized gains. Let’s summarize what we’ve covered so far.  

You’ll want a heavy focus on macroeconomics of  the holdings of the underlying index, in this  

case QQQ. Does it justify using 3x leverage?  And we saw TQQQ has done incredibly well,  

the Q’s have done very well too. The top ten  holding of those funds are built in a way  

that should lead to steady gains for investors.  See how we’re answering big-picture questions and  

learning about the ETF at the same time? Hit the  like button if this is your kind of video.  

Question TWO before investing in a leveraged ETF  like TQQQ: would you allocate a large portion of  

your investing capital to a NON-leveraged version  of the same holdings? Would you hold it long-term?  

In this case, would I allocate a large  portion of my holdings to the Q’s?  

Well, regardless of how me or you answer  that, many people DO invest in the Q’s!  

In fact the Q’s is the fifth largest ETF  in existence. What’s especially intriguing,  

is that the four ETFs with a higher AUM than  the Q’s, ETFs with hundreds of billions in AUM,  

are all more-or-less indiscriminate broad market  ETFs. They are the STANDARD of investing.  

BUT the strategy of The Q’s is the MOST VALIDATED  by investors AFTER the S&P 500. That’s what this  

table shows. Are you with me on that? Do you  see how I reached that conclusion? The only  

other investing strategy that has lured more  money in ETF-land than the Q’s are market-wide,  

broad index funds. So if the Q’s are  THAT respected by investors as a whole,  

they answer YES for our second question: would  the underlying index be worthy of holding long  

term. So far, TQQQ is passing all the tests. Question 3 is the most important question for  

any leveraged ETF holder to answer. That is: am  I willing to stick with this thing through ANY  

downturn? TQQQ lost more than two thirds of its  value during the covid crash. Poof. Vaporized.  

That’s called a drawdown in  investor-speak. And it’s painful.  

Far more painful with leveraged products. But TQQQ was back to making new all time highs  

again just five months later. So leveraged ETF  holders need to ask themselves. What would you  

have done? Would you have had the stomach to  hang on as a ten thousand dollar investment  

dwindled down to thirty five hundred?  Would you have sold on the way down?  

This is a good time to mention that I have MANY  leveraged ETF videos in my channel, and you  

probably know this if you’re a subscriber. Be sure  to hit subscribe if you like this kind of content.  

Likes and subscribes tell me which  kinds of videos to make more of. But  

it's a good time to mention that many of you have  left comments on other videos, highlighting the  

confusion around holding leveraged ETFs for a  single day versus over a longer horizon.  

Let’s take a look at the prospectus, here’s  how it looks to me. First, the fund has a  

stated objective of delivering 3X the return  of the underlying index, on a single day.  

Emphasis on “single day.” They bolded it for us  here. The second thing it says is that the fund’s  

performance will be different over longer  periods of time than its stated goal of 3x  

the daily return. Or, said another way, they can’t  make any promise or prediction of performance  

for anything more than one single day. Step outside of leveraged ETFs for a second. Think  

about the fine print of an S&P 500 index fund,  how is it different? It isn’t really. The goal  

is to closely track the S&P 500 index. So  if VOO for example underperformed the S&P  

by ten percent every year, investors might leave,  because Vanguard is clearly not meeting its stated  

objective. I think the leveraged ETFs are the same  thing. These ETF issuers are basically saying,  

look, these are built for an objective that only  occurs in one single day. Anything after that,  

it's on you! They aren’t saying don’t  invest, don’t hold, just - don’t look to us  

for a performance predictions. They go on to say, well look if the  

market is flat for a year this leveraged ETF  will be negative. Okay, thanks, ETF issuer! And  

they say that performance over time will vary  in returns and even the direction of returns  

compared to a single day performance. Let me give you an analogy. Ice cream scoopers.  

They’re kind of this exaggerated spoon shape,  right? That’s all they are. But they’re really  

good at scooping perfect balls of ice cream.  Now, just imagine that the ice-cream scoop  

packaging said something like, this spoon is  only intended to scoop ice cream and scoop  

ice cream very well. If you use it as a cereal  spoon, we make no guarantee that it will work,  

because this is strictly designed to scoop  ice cream. Haha ok silly I get it, but could  

you eat cereal with an ice cream scooper?  Sure. It might not be as good as a spoon,  

OR in some cases it might be better! Depends on  how thick you make your cereal I guess haha.  

We’ve covered alot, so quick recap. TQQQ leveraged  ETF offers investors 3X the daily returns of QQQ.  

The Q’s is a technology-focused fund, and has  done remarkably well over the last decade and  

it’s one of the biggest ETFs in existence. We also noted that selling low KILLS leveraged  

ETF returns for long-term holders. And finally, we  dug into the fine print of the prospectus - just a  

little - to investigate why there’s confusion  in the leveraged ETF messaging.  

I have one last thing to touch on. This is NOT  one of my normal three questions for leveraged  

ETF investing, but it’s worth noting. Have you  asked yourself: how do these ETFs actually deliver  

3X the results using just 1X the capital? It’s  through derivatives. It’s through swaps. We said  

earlier in this video, we can’t look directly  at the holdings of TQQQ to know what stocks are  

inside, we have to look at the good-old-fashioned,  UN-leveraged Q’s for that answer. Do you know why?  

Because here’s what the TQQQ holdings look  like. The biggest holdings are billions and  

billions of dollars in derivatives. THIS  is how TQQQ and Proshares are delivering  

3x returns each day. We don’t need to  dive too deep into this, but investors  

should probably ask themselves: do I care? Does  this matter to me? Do I look at this and think:  

swaps - yikes. I’m outta here. This looks like  black magic. Or do I look at this and think:  

okay whatever, give me those 3x returns! This is  the final piece of the puzzle. Whether or not the  

“how” of leveraged ETFs is important. I hope you learned something about TQQQ  

today. And don’t forget to give me 3X on the like  button. Thanks for watching and I’ll see you on  

the next one! -- END