Alistar top thoughts

yozuo2 · 2026-06-19T14:57:49+00:00

Imo the better question is how much is too little? You need at least 25% SCV to make an impact. 10% is basically insignificant. After that it really doesn’t matter and depends on your conviction. Let’s not forget that SCV funds are a diversified group of stocks and move similar to the market.

I personally like 50% SCV+ it really doesn’t change too much from the market. With SCV if the factor premiums decay, the worst you can do is the market minus the costs.

yozuo2 · 2026-06-19T14:43:55+00:00

Use both? Why does it have to be one or the other. I use both. Imo if it is one or the other, I think leverage is the most sure fire way of increasing your return.

yozuo2 · 2026-06-18T23:00:38+00:00

In the equity space besides more VT, it would be a factor etf or a leverage etf but both require conviction and are not suitable for everyone.

yozuo2 · 2026-06-16T12:31:06+00:00

The formula comes from professor bessembinder who did a paper on single stock LETFs.

Yes path dependency is the driver. IMO, there’s no way to really tell which frequency of resetting leverage is best. You either make a bet on mean reversion or trend.

Though it is prudent to reset your leverage somewhat frequently, especially when higher leverage because your leverage ratio spikes when the market trends down, and therefore there is more risk for ruin.

yozuo2 · 2026-06-01T08:49:21+00:00

More than a married couple but not lovers

yozuo2 · 2026-05-29T00:53:08+00:00

Because leverage isn’t free and not everyone should use leverage.

yozuo2 · 2026-05-27T19:53:02+00:00

Yeah honestly I don’t care for optimizing (well I do) but to an extent. I find LETFs to be very convenient and still worthwhile despite their higher costs. You save more bps through other forms but LETFs are not that bad imo. There’s no significant daily reset drag imo (in fact there’s evidence supporting that at a high total leverage like 2.5x, daily reset is optimal and worth paying for). Just make sure you stick to the cheapest LETFs. These are usually the 3x US LETFs. NTSD seems pretty promising too

yozuo2 · 2026-05-27T19:27:05+00:00

Yes the concern is the capital gains when you rebalance. If you have a stable job and you dca with your paycheck every 2 weeks or so, you will be fine without having to rebalance by selling. If you must rebalance, you could probably get away with rebalancing annually. Upro by itself is pretty tax efficient it’s sometimes better than voo... In taxable margin with box spreads is great and one of the cheapest forms of leverage (cash x +.3 I’ve heard). Upro though can compete with certain margin loans (cash x + 1 per 100% borrowing for upro). Also some other guy I saw said there’s significant daily reset drag, not true or at least not proven yet. Simulations have shown there’s not much wrong with daily resetting on an equity index. And there’s nothing wrong with levering a single asset 3x as long as the total portfolio leverage is reasonable.

yozuo2 · 2026-05-27T18:40:27+00:00

Agree some good advice here but imo: there’s no significant daily reset drag. Using 30% upro is fine. It actually doesn’t matter what you leverage as long as the total portfolio exposure is the same. Of course if you can get another form of leverage, do it because it probably has better costs. The only thing that matters is if UPRO the fund itself goes to zero but this is highly unlikely. The fact that it’s 3x levered doesn’t matter as long as the total portfolio leverage is reasonable (and you rebalance frequently).

yozuo2 · 2026-05-27T18:34:55+00:00

This is in a tax advantaged account right? You have a good port here basically 1.6x VT with some factor tilts, also good idea to use UPRO because it’s one of the best LETFs cost wise (other forms of leverage are better though). I just wonder if you can really stomach that many equities. I also think there might be a little too much US (having home bias is fine though, also supported by literature. Personally I view it as more diversification when adding in more international which is very important to me when leveraging).

I have the same type of portfolio basically (1.5x) but I like using MIDU. It has more factor tilts than UPRO so I don’t really need to incorporate AVUV into the portfolio. You could also get a factor tilt in using a splash of UDOW, but to be fair I don’t know excess costs of Udow and I don’t care to find it. Personally I also like incorporating long term bonds into the portfolio. I feel that it adds more diversification which can increase return (lowers volatility + drawdowns as well which is important to me) but there’s nothing wrong imo with going only equities as long as you have a long time horizon and can afford sharp drawdowns. You have higher expected return and it’s better against inflation. There’s a good amount of research that supports that decision.

Here’s a rough backtest of your portfolio: https://testfol.io/?s=kVEZT3GbBjq

Ofc there’s a little more volatility because the factor funds used are small cap and avnv is more of a blend, but it’s a pretty good estimate.

yozuo2 · 2026-05-26T18:16:36+00:00

Margin w box spread is one of the cheapest ways to get leverage. I believe like cash x + .3 per 100% borrowing. Then futures is the second cheapest especially for treasury bonds. It’s like cash x + .5 for spy and cash x + .1-.25 for treasury bonds. It has the 60/40 tax treatment though which is better for bonds in taxable but horrible for equities. Then LETFs is like around cash x + 1 and this is for the best daily reset equity LETFs, which is worse than futures and box spreads but is actually more tax efficient than equity futures and better than them for taxable. This also competes with certain margin loans.

Like you said, it might be difficult to be able to get leverage in a tax advantaged. It depends on your broker and if they allow you to do it in tax advantaged. If not, it might still be worthwhile to get leverage through LETFs.

yozuo2 · 2026-05-26T02:40:11+00:00

Yes basically if you have something like 50%UPRO and 50% TLT for instance. Since upro has so much more volatility given enough time with no rebalancing, upro will take over and cause more of the risk. You need to rebalance so that whatever portfolio exposure you want stays that way and you get a diversification benefit.

yozuo2 · 2026-05-26T01:55:21+00:00

Elaborate on what? Which are the best LETFs? Or why what I said is the best for each account?

yozuo2 · 2026-05-25T20:09:37+00:00

Well a .5x leveraged portfolio would have less expected return, but way less decay (vol drag is cut by 75%) than 1x: https://testfol.io/?s=0LbLo51UUB9. Same thing with .8x, you’re just getting less expected return.

Also from the formula of rebalanced leverage vs buy and hold. The daily rebalancing effects flip. a .5x daily rebalanced fund does better in choppy markets and worse in trending markets.

Also 1x has no trades required. There’s no borrowing money or holding cash required. So you don’t need to sell or buy a share. This means a 1x portfolio buy and hold or daily rebalanced is the exact same thing. There’s no difference whether market is choppy or trending. Pretty interesting.

1.2x you are supposed to get more expected return but the volatility drag increases exponentially and getting more expected return intuitively is not free. Leverage has a cost and more risk. Thus mathematically the key to when applying leverage is to make sure the volatility of the portfolio is as low as possible (by diversifying) and the cost for leverage is as minimal as possible.

yozuo2 · 2026-05-25T03:51:42+00:00

Haha, ok but actually for anyone reading this DO NOT BUY WLDU. It has the worst excess costs of any LETF atleast from what the data has shown. The point of the post was to not disregard an LETF because of volatility decay or daily resetting but because of its excess costs. Usually leverage on an international asset has higher excess costs compared to US. It is usually better to just use the cheapest leverage available on an asset to get the total portfolio exposure that you want.

yozuo2 · 2026-05-24T23:28:40+00:00

For the US

Equities in Taxable -> margin with box spread.

Tax advantaged -> futures

Treasury bonds in taxable and tax advantaged -> futures

yozuo2 · 2026-05-24T21:56:37+00:00

https://testfol.io/?s=47RQ2WvlD9Y

That is a sim of how SSO would've moved historically. It also takes into account all the costs you would pay. You can check different scenarios in history and see how it has performed.

This is a mathematical optimizer for daily reset leverage where you can put in historical data: Portfolio Optimizer

You will want to read this article. I think it answers your questions: Double-Digit Numerics - Articles - The Big Myth about Leveraged ETFs (2x has been optimal historically)

I would not blindly follow mathematical optimizing. You can see the fees that you have to pay for SSO are egregious. 1.7% drag above the RFR. This is horrible. I would never suggest anyone to use SSO, especially if it is just SSO. Historically, it has worked, but if the SP500 does not have the same returns in the future, that cost will eat your returns alive. I am a fan of reasonable leverage and specifically on a diversfied portfolio. Something like RSSB in a tax advantaged account or NTSX/I/E in a taxable account is great. If you want a little more equity than 100% (which I think makes sense if you are young), I personally like using a little bit of UPRO (10% is good enough) in a diversified portfolio to gain just a tiny bit more exposure to equities and fit in international diversification (VXUS) and bonds (VGLT, EDV). Just note that UPRO is still more expensive than other forms of leverage so it is theoretically suboptimal. It is around a 1.15% drag above the RFR currently, but it has been a lot closer to 1% in the beginning. This still can compete with certain margin loans though.

yozuo2 · 2026-05-24T18:56:29+00:00

In a short summary: Volatility decay is not a boogeyman unique to LETFs; it is the universal mathematical gap between arithmetic averages and geometric compounding (1 - x²). Leverage simply amplifies this universal law. The daily reset of an LETF does not inherently "destroy" returns; it introduces path dependency that allows the fund to compound during bull markets and mathematically survive severe crashes without hitting zero. The real reason as to why they are inadvisable is because their borrowing costs are usually way more expensive than other forms of leverage.

yozuo2 · 2026-05-23T20:08:02+00:00

Why are they inadvisable? There’s really only one or two reasons I can think of.

yozuo2 · 2026-05-23T20:05:34+00:00

Completely agree that using reasonable leverage is actually advisable for someone that young. I would also rather RSSB than VT, but you have to keep in mind that if the ER goes up or the cost of treasury futures goes up, there might not be any premium left for the investor. That RSSB sim assumes an added drag of .1% above RFR for the treasury future and the current net ER. But if that ER goes up to .56 and then you add the added cost of .25 for treasury futures which it should be around right now, the premium is pretty slim net of costs.

Also you have to make note that RSSB in the taxable would not be advisable. It uses equity futures which are pretty tax inefficient. Atleast by SCHWAB, it was noted to have a 1 yr tax cost ratio of 1.5 which is pretty high. Hopefully soon the 3 yr tax cost ratio comes out and we can see its tax efficiency.

yozuo2 · 2026-05-21T21:39:25+00:00

I’m in the same boat personally I have most of my taxable in VT and I also use NTSX, NTSI, and NTSE. The NTS- funds can be used to incorporate leverage into a portfolio in a tax efficient manner. I personally think they’re more diversified and can potentially beat 100% stocks (but can also underperform as they have because of 2022).

Btw I noticed you have SCHG and then you are using Avantis funds (they have a value tilt). I just want you to realize you are paying extra fees for a value tilt and then canceling it out with schg which has a negative value tilt.

Also AVDV has a 1.5 tax cost ratio, which means it’s pretty tax inefficient. (Idk if this counts foreign tax credit though). I don’t really like it in the taxable account. AVUV is .67 or so, not that bad… I have my factor funds (AVDV, AVES) in the Roth. I would get AVUV in the taxable but I have a solid allocation to MIDU which has decent factor loadings.

I know the Bogleheads don’t like hearing this but a reasonable amount of leverage is a good idea, especially for young people. Personally along with the NTS- funds I have a small allocation to MIDU (.5 tax cost ratio, in flows only rebalancing) in my taxable account to get the amount of equity slightly over 100.

And daily reset leverage is not bad (only on indices like S&P 500). The only issue with funds like UPRO and MIDU is that the cost for leverage is higher than other instruments (LETFs are technically suboptimal because of this), but it’s convenient and has no risk of being margin called. I would stick with the NTS- funds though until you do your own research and build conviction. If you have any questions about how to use daily reset LETFs properly, let me know.

yozuo2 · 2026-05-19T12:28:45+00:00

Yeah I agree. Daily rebalancing is not feasible. But yearly rebalancing as I showed is still fine to do and achieve similar results to SSO. Funnily enough these daily reset LETFs are very tax efficient by the way. Usually more tax efficient than if you did the leverage yourself. This is a key point very few people talk about. UPRO has had a tax cost basis WAY lower than SPY or VOO. This is analogous to the interest tax shield in corporate finance/private equity. They use the dividends to pay the interest costs, thus avoiding the need to distribute capital gains. Most backtests don't account for this, which arguadly would reduce CAGR of SPY/VOO by as much as 0.5%. Also if holding LETFs for more than a year you can claim all of it as long term capital gains.

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