Why Leveraged ETFs QLD and TQQQ Are a Long-Term Investor's Nightmare

Investors seeking to grow their capital over decades would be wise to avoid leveraged exchange-traded funds (ETFs) such as ProShares Ultra QQQ (QLD) and ProShares UltraPro QQQ (TQQQ). While these products offer the allure of amplified returns during bull markets, their structural flaws—including compounding losses, sky-high expense ratios, and reliance on derivatives—make them perilous for long-term portfolio sustainability. This article dissects the risks and compares them to low-cost, non-leveraged alternatives like the Invesco QQQ Trust (QQQ) and SPDR S&P 500 ETF Trust (SPY), which preserve principal and deliver steady growth.

The Compounding Losses Trap

Leveraged ETFs like QLD (2x) and TQQQ (3x) are designed to deliver daily returns proportional to their underlying index—here, the Nasdaq-100. However, their mechanics create a “volatility decay” effect, especially during prolonged market declines. For instance:

• 2020 Pandemic Crash: QQQ lost roughly 30% from its peak, but TQQQ plummeted over 70% due to its triple leverage. QLD's 2x exposure caused a ~60% drop.
• 2022 Bear Market: TQQQ's drawdown hit 81%, while QLD's reached 83%—both far worse than QQQ's ~20% decline.

The math is ruthless. If an index drops 10% in two days (5% daily), a 2x ETF would lose 10% each day, resulting in a total loss of 19% (not 20%) due to compounding. Over time, these losses compound further, eroding capital faster than the underlying index.

Feeble Returns from High Costs

Leveraged ETFs carry steep expense ratios that exacerbate losses over time. Compare QLD's 0.95% and TQQQ's 0.84% to QQQ's 0.20% or SPY's 0.0945%. Over 10 years, these fees can swallow a staggering chunk of returns.

For example, $10,000 invested in QQQ at a 7% annual return (net fees) grows to ~$19,672. The same amount in QLD, with a net return of 5.05% (subtracting fees), yields just ~$16,546—$3,126 less. Over decades, this gap widens exponentially.

Derivatives: A Hidden Time Bomb

QLD and TQQQ rely on swaps, futures, and other derivatives to achieve their leverage. This introduces risks:

1. Tracking Errors: Daily resets mean leveraged ETFs rarely mirror their index's long-term performance. For instance, while the Nasdaq-100 rose ~450% over the past decade, TQQQ's returns were inflated to 1,830%—but this came with catastrophic volatility.
2. Counterparty Risk: Derivatives depend on third parties fulfilling obligations. In a crisis, this could lead to unexpected losses.

The Case for Non-Leveraged ETFs

Low-cost, non-leveraged ETFs like QQQ or SPY offer superior risk-adjusted returns. Their simplicity—tracking an index without compounding fees or derivatives—protects investors from volatility decay.

• QQQ vs. QLD/TQQQ: QQQ's Sharpe Ratio (2.03) and Sortino Ratio (2.37) outperform QLD (1.32 and 1.54) and TQQQ (1.86 and 2.07), indicating better risk-adjusted performance.
• Expense Advantage: Over 20 years, QQQ's fees would cost ~$2,000 less per $10,000 investment than QLD—a difference that compounds into meaningful wealth.

Investment Advice: Avoid Leveraged ETFs for Long-Term Goals

Leveraged ETFs are high-risk tools for traders who monitor markets daily. For long-term investors:

1. Stick to Core Holdings: Use QQQ or SPY for growth, paired with low-cost S&P 500 or global index funds.
2. Avoid Leverage: QLD and TQQQ's structural flaws make them unsuitable for retirement accounts or multi-decade strategies.
3. Focus on Cost Efficiency: Prioritize ETFs with expense ratios below 0.20%, such as SPY or the iShares Core S&P 500 ETF (IVV).

Conclusion

QLD and TQQQ may seduce investors with the promise of “double” or “triple” returns, but their risks—compounding losses, high fees, and derivatives—make them financial landmines for long-term portfolios. History shows that non-leveraged ETFs like QQQ consistently outperform their leveraged cousins over time, preserving capital and delivering steady growth. For sustainable wealth, avoid the siren song of leverage and embrace simplicity.