There are a lot of different funds, i.e. ETFs, that trade in a weird way. For instance NVDY makes money by selling options on NVDA… or whatever they do. I’ve never bought NVDY but if I did, I would really understand it. And I guess that’s the point.
If you choose to buy any kind of investment vehicle, whether a stock, mutual fund, exchange traded fund, or trust, you better understand how it works. For TQQQ, UPRO, and TMF they are pretty straight forward but you still need to understand their ins and outs. How they could go up, how they could go down, and how they could zero out.
I heard a story recently about a stock that was so volatile that the ETF that tripled it went down in value, even though the stock went up. That’s f’n crazy. But you know, it can happen. That’s why I do prefer the ETFs that triple the indexes that hold 100 to 500 stocks, or plain old long-dated bonds. But there might be some use in buying something that does something with an individual stock… certainly not telling you not to buy them… but you better really really know how they work.
I guess it’s just like anything else: buyer beware. But the buyer should not depend on somebody else to know for him. He should know the down in the dirt details himself. Because at the end of the day, the buyer is the one who has to suffer the loss.
Have you ever heard the old saying: Bulls make money, bears make money, but pigs get slaughtered? A lot of times these odd ETFs will look so attractive. Some pay out a 97% dividend! I would love to get something with the 97% dividend, I don’t even need the principle after a couple of years. But what is your negative risk from buying the ETF with a 97% dividend? In all likelihood there will probably be times when that dividend is not paid or it is much less. There is also a likelihood that the principle value will go down in a big way.
But honestly there are these kinds of ETFs with less risk and still a pretty good return on investment. But you only know the risk when you truly understand the investment.
Now, I don’t always know 100% of everything about an investment when I make it. But I do end up learning a valuable lesson when it goes sideways.