This ETF Turned $10,000 Into More Than $1.5 Million in Just 14 Years - Should You Buy It Now? - Latest Global News

This ETF Turned $10,000 Into More Than $1.5 Million in Just 14 Years – Should You Buy It Now?

Since the end of the financial crisis about 15 years ago, it has generally been a great time for the technology sector. An extended period of historically low interest rates has helped spur innovation, the stock market has avoided major recessions, and most of the largest technology companies have performed particularly well.

This has resulted in excellent performance in the technology-heavy space Nasdaq 100 Index. One exchange-traded fund (ETF) that has done particularly well is the ProShares UltraPro QQQ ETF (NASDAQ:TQQQ)which has turned a $10,000 investment into more than $1.5 million since its founding in 2010.

What is the ProShares UltraPro QQQ ETF?

The ProShares UltraPro QQQ ETF is an exchange-traded fund that aims to deliver three times the daily return of the Nasdaq 100 index. It is a type of ETF known as leveraged ETFThis means using derivative securities and/or borrowed money to increase returns to a desired level.

In other words, if the Nasdaq 100 goes up 2% on a given day, the ProShares UltraPro QQQ ETF goes up about 6%. If the Nasdaq 100 falls 1%, you can expect the leveraged ETF to fall 3%.

The historic achievement was spectacular

The ProShares UltraPro QQQ ETF has been a spectacular investment, especially for those who have owned stocks for a long time. Here’s how it has performed over specific time periods compared to the Nasdaq 100 index.

Period

ProShares UltraPro QQQ ETF total return

Nasdaq 100 total return

1 year

114.3%

38.4%

3 years

29.7%

40.2%

5 years

340.5%

158.3%

ten years

2,360%

464%

Since its founding (February 2010)

14,330%

1,060%

Data source: yCharts. Return by May 15, 2024.

The long-term performance of the ETF should be taken into account far more than three times the return of the Nasdaq 100. This is because the ETF is designed to return three times that daily Index returns. I’ll spare you a long math discussion, but the general idea is that these are compound returns.

It’s the same reason as Warren Buffett Berkshire Hathaway has delivered an annual long-term return of about 20%, versus about 10% for the S&P 500but Berkshire’s cumulative return since 1965 is 4,384,748% versus 31,223% for the benchmark index. This is the power of long-term compounding when an investment performs particularly well.

Risks and other things to consider

First of all, it’s important to note that the ProShares UltraPro QQQ ETF’s excellent long-term performance has a lot to do with fortunate timing. In short, if the ETF had just launched Before After the financial crisis, developments since its founding would have looked completely different.

However, it began less than a year after the market bottomed and experienced the longest bull market in history. Although such a scenario could potentially happen again, I wouldn’t count on it. The past performance of an investment is no guarantee of future results.

Even though a leveraged ETF magnifies gains, it also magnifies losses during difficult times. Historically, it is not uncommon for investors to lose most or all of their money in leveraged ETFs during difficult times. In fact, in the growth stocks crash of 2022, the ProShares UltraPro QQQ ETF lost more than 60% of its value in less than six months. Only invest if you are prepared to deal with such massive fluctuations.

Finally, it should be noted that the ProShares UltraPro QQQ ETF has a relatively high gross expense ratio of 0.98%. For context: the Invesco Nasdaq 100 ETF (NASDAQ:QQQM), a non-leveraged index fund that tracks the same benchmark, has an expense ratio of 0.15%. That’s quite high for an index fund, but makes sense given the specialization and complexity of leveraged ETFs.

Should you invest?

Unfortunately, there is no one-size-fits-all answer to the question, “Is the ProShares UltraPro QQQ ETF right for me?” If you don’t have a very high risk tolerance and can’t stomach large price swings, it’s probably not for you. If you’re okay with the volatility, it might be worth a look, but it would be wise to limit the size of your position to an amount of money that you can afford to lose if things don’t go your way.

Should you invest $1,000 in ProShares Trust – ProShares UltraPro Qqq now?

Before you buy shares of ProShares Trust – ProShares UltraPro Qqq – you should consider the following:

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Matt Frankel holds positions at Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.

This ETF Turned $10,000 into More than $1.5 Million in Just 14 Years – Should You Buy It Now? was originally published by The Motley Fool

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