Leverage: Fast Fortune or Failure

Talking Real Money - Investing Talk

Don and Tom dive into the seductive but dangerous world of leverage, starting with real estate and quickly moving into the even riskier territory of leveraged ETFs. They explain how leverage magnifies both gains and devastating losses, using real-world examples like the Direction 3X Treasury Bull and Bear funds, which either crushed or annihilated investor money. They caution listeners that these “extra touchy” funds are pure speculation, not investing, and explain why most people should stay far away. The episode wraps with smart listener questions on direct indexing, Roth rollovers, and the hidden risks in trying to beat the market on your own.

• 0:04 How leverage props up real estate and investing myths
• 1:32 The dark side: Leveraged funds and massive losses
• 2:49 Triple leverage dangers: 90% losses vs. 266% gains
• 5:38 Long-term performance: both leveraged bulls and bears lose
• 7:52 Even treasuries show wild volatility with leverage
• 9:57 Why leveraged funds are pure speculation, not investing
• 11:44 Risk explained through standard deviation comparisons
• 14:16 Listener question: Direct indexing vs. S&P 500 returns
• 17:44 Listener question: Roth 401k rollover to Roth IRA tips

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