I understand there are additional risks with 3x vs 2x leveraged funds. I am evaluating a mix of both 2x and 3x funds. While most sectors in the U.S. economy might correlate in a major downturn, I highly doubt gold, silver and crypto funds will follow that downturn, and they are also part of my mix.
There are circuit breakers in the U.S. stock market to prevent the large single day drop that occurred on Black Monday, so I'm not that concerned with a single-day event wiping out my funds. Such a drastic drop in the markets is more likely to occur during periods when the market is overvalued, where AIM cash is plentiful from sales during the rise, and the AIM investor has the option to PAUSE further AIM action and wait for clarity in the markets before continuing. In such an instance, even if the underlying ETF went to zero, the cash position is still safe. Granted, it's not the best of scenarios but it likely wouldn't result in losing 100% of the investment.
The entire point of AIM is to reduce risk in our investments by not having all funds invested, except in major drawdowns. Now, if you want to suggest the market continues a long slow downward spiral where cash is fully invested, and continues to decline where the leveraged ETF is zero, I find that unlikely. In that instance, the gold, silver, and crypto ETFs would probably be soaring, so still not a total loss, and not all leveraged ETFs would reach zero. That's why I'm going to invest in at least 10 across multiple sectors.
I plan to contact a few of the leveraged ETFs I'm evaluating to ask them if they would halt their strategy temporarily on a major downturn, or continue on as usual and risk wiping out their fund. I suspect I already know the answer. Since these funds close out their swap and derivative positions daily, they also have to option to pause and evaluate. In all the leveraged ETFs I've evaluated, the chart clearly shows some that have declined to a very low price and never recovered, but all of them are in investment areas I wouldn't be interested in anyway.
I appreciate your comments and advice.
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