How To Start A Fight With Your Neighbors « Minting Pennies – Personal Finance, Investing, and Microfinance

Next time your coworkers or neighbors complain about how their houses are now worth 15-20% less, you can brag to them:

“My little piece of real estate went up xx% just last week alone. For the month, it is up xx%”

DRN

ETF’s are all the rage right now. They are index funds that can be traded on a day to day basis. They are hotter than El Azizia in Libya in the middle of September. That’s hot. But as hot as those are, double and triple leveraged ETF’s are even hotter. How is that possible?

Playing with fire

These ETF’s promise to return twice or three times the DAILY return of the underlying index it is emulating on a DAILY basis. Sometimes they are designed to return twice or thrice the esrevni (inverse) of the index. If the real estate index goes up 3% in one day, then URE will go up 6% and DRN will go up 9%. That’s a lot of money to be made in one day.

BUT…

There is always a “but” when it comes to something this good.

If the index goes down 3%, URE will lose 6% and DRN will lose 9%. It can be a real roller coaster owning these ETF’s but that is why I only use “play money” to trade them. This is money I can afford to lose without going crazy. Also because 9% down will always be more than 9% up, it is very strongly encouraged that you do not hold these ETF’s for more than a day.

Just as fire can illuminate, it can also burn you BAD

Personally, I have been buying DRN and FAS really early in the morning depending on what data will be released that day. By the time I have to go to work, I sell the shares even if I am at a loss because these ETF’s are so freaking volatile. On my 45 minute drive to work, I can lose all my play money.

These leveraged ETF’s are not for the weak hearted and the only reason I can be semi calm about buying them is knowing that I can afford to lose all of my “play” money.

Do you think I am being silly trading like this? Or is this one of the better ideas you’ve heard of in a while? Please let me know.

Disclaimer: Past performance does not guarantee future results. Do your own research then share. Invest wisely.

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2 Responses to “How To Start A Fight With Your Neighbors”

Jumping On the Bandwagon « Minting Pennies – Personal Finance, Investing, and Microfinance on November 10, 2009

[...] different game than most traders. Whereas most traders buy and sell in a span of a few days or even a few hours, Mr. Buffet is only interested in holding onto things for a very long time. Even if the economy [...]

Slippery Slope « Minting Pennies – Personal Finance, Investing, and Microfinance on December 9, 2009

[...] risk when it comes to margin accounts. It is possible to lose more than what you invest. Even with triple leveraged ETFs, you do not risk as much as with these type of [...]