Your Survival Guy likes Treasury bonds but not leverage, and I prefer a shorter term than the 30-year. Below, Jason Zweig of The Wall Street Journal explains the variety of experiences investors encounter using leverage on long-term treasuries in ETFs. As you can see, investors playing with both can get burned. Let’s not forget about the Fed keeping rates so low and tempting income investors to take on more risk. Zweig writes:
If you’d bought the leading exchange-traded fund investing in long-term U.S. Treasury bonds at its peak in August 2020, you’d have lost 41.3% by now—even after reinvesting your interest income.
Two ETFs that amplify the daily returns on long-term Treasurys make that wild performance look tame.
Over the same period, the Direxion Daily 20+ Year Treasury Bull 3X Shares ETF, which seeks to triple the daily return of a long-term Treasury bond index, lost 90.2%, according to FactSet. Its mirror-image fund, Direxion Daily 20+ Year Treasury Bear 3X Shares, which aims to deliver three times the opposite of the long-term bond’s daily return, gained 266.6%.
Action Line: Leverage is like fire, it can warm you up, but it can also burn you. If you’re using leverage, be aware of the risks and measure them against your own tolerance. When you want to talk about risk in your portfolio, email me at ejsmith@yoursurvivalguy.com. Click here to subscribe to my free monthly Survive & Thrive letter.
