Get the portfolio here: Get the portfolio here: optimizedportfolio.com/go/hfea Remember, don't put your entire portfolio in this strategy. These products are extremely risky by their very nature. If you are in on the strategy, remember it is a LONG-TERM strategy of necessity. Ignore the short-term noise and stay the course.
I like a mix of hedgefundy with small leveraged all weather. I am not brave enough to put it all in on hedgefundy, although I think his idea's are solid.
I've had good results back testing with TQQQ, SOXL, UJB, UBT and VIXY. Vixy 5%, UBT 8%, UJB 2%. Split the rest between TQQQ and SOXL. You can also put a few percent between SSO and QLD to reduce drawdowns. They are the same as TQQQ and SOXL except only 2x leveraged.
I wasn't data mining. I was sharing ideas. I ended up doing 25% Tesla, 12.5 SOXL, 12.5 TQQQ, the rest is in JEPI, SCHD, SDY, GLD, SLV and TMF. 50% risky and 50% safer assets. I recently cut all my leveraged and trimmed back Tesla for now since we're way into overbought territory. Im getting the cash loaded up for the big pullback that's coming. I love to buy the dip.
Okay, I'm intrigued by the idea of risk parity with leverage. I'm going to try to do three portfolios with very small values: Hedgefundie as described, a variant with only 2x leverage (SSO/UBT), and an unleveraged version (VOO/EDV). I'm more curious about their long term performance over anything else.
For 2x you can just do 50% UPRO/TMF and 50% VOO/TLT and save some on fees. Your "unleveraged" version is not the same; EDV is pseudo leveraged. It would just be VOO/TLT.
this strategy got absolutely wrecked in 2022 when the fed raised rates at fastest clip ever, triple levered rates TMF got demolished and the rest of the broader market was wrecked led by high flying tech stocks which comprise the bulk of s&p500
True, but that's why we say this is a long-term strategy of necessity, and if not making regular deposits, starting interest rate regime may affect the final outcome greatly.
@@Feds_the_Freds Certain bonds are great hedges during large drawdowns, but it makes little sense to buy leveraged bonds. Bonds are designed to provide to provide consistent low volatility returns. TMF being a 3x bond is much too volatile for a bond hedge, which tanked 70% in 2022.
Could you explain how does PortfolioVisualizer account for Quarterly Rebalance ? For example,let's assume I'm starting to run Hedgefundie today on 10/07/2021, when will be the next balance ? Great channel btw
i just started to learn how to invest ,your videos and blog are awesome!and since i am 25 years old,i would also like to try 55 percent upro and 45 percent tmf .
@@OptimizedPortfolio according to SeekingAlpha, EDV pays a quarterly distribution (ref: seekingalpha.com/symbol/EDV/dividends/history ). And according to Vanguard, EDV pays a quarterly dividend and also capital gains (ref: investor.vanguard.com/etf/profile/distributions/edv ) What support or documentation do you have that they don't actually pay a distribution?
@@manp1039 I guess the fund is doing the phantom interest for you. Or capital gains from the bond rollover. STRIPS by definition don't pay a coupon. It's "stripped." Hence the name. Here's more on the subject: www.bogleheads.org/forum/viewtopic.php?t=346035 www.bogleheads.org/forum/viewtopic.php?t=44327
Apologies for a naive comment - why don't we simply use a Tailing stop loss (of say 10%) on a 100% UPRO (or even TQQQ) position? I did a simulation of this for UPRO and you can see that my positions would have been sold at the start of the pandemic-driven melt-down in 2020 (and on no other occasions before that). This way, you can enjoy the bull run given by UPRO and get out of the market in a timely manner.
Great video John! I've read a great deal of the HF Thread and I keep asking myself (as an investor with a very long horizon), why would some people advocate for an entire portfolio with 100% stocks but when it comes to the HF strategy, they wouldn't invest 100% of their portfolio on it. Backtesting shows almost an equal and sometimes (depending on start date) a slightly better sharpe for HF. What are your thoughts on this?
Because we don't know the future in regards to correlations and interest rates, and these leveraged funds could crash in tandem. Basically, this thing could go to zero or could at least underperform the market.
@@OptimizedPortfolio Thanks for your response! In what escenario would you think it would be possible for both funds to go to 0? And would you consider it very unlikely? Just recently I added a mix of PSLDX and HFEA as part of my agressive AA. Your website content has been of great help to further conceptualize a lot of topics like risk parity in portfolios with leverage. It shows that you put a lot of effort and analysis into your work!
@@davidmojica9401 Thanks for the nice words! Basically we're concerned with something like a crash in a rising rate environment and potential runaway inflation that could cause stocks and bonds to crash in tandem. Pretty unlikely. But adding a dash of gold may be sensible.
You’re funds won’t go to zero however 3x leverage can diminish your capital to such a low amount during severe or long drawdowns(87, 00-02, 08, 20) that it can take years to re-establish enough capital to appreciably grow your investment. TMF provides a leveraged treasury hedge during drawdowns, which can be rebalanced AKA reinvested back into UPRO…..which maintains your capital investment in UPRO maintaining your fund growth long term.
So, if I understand you correctly, HFEA is essentially a 60/40 stocks/bonds portfolio, but on steroids, meaning 3x leverage? Do you still follow this strategy, despite 2022? If so, could you explain why?
Thanks. Already explained this in the video. We WANT greater volatility of the "hedge" to closer match that of UPRO. Historically, anything less than 30% bonds was suboptimal IIRC.
No, though you could set up automatic transfers and if the deposits are large enough, they'd do the rebalancing for you, as M1 buys the underweight asset.
UPRO +11,989% vs SPY +312% over last 22 years, so I will take the “time decay” on UPRO, suggest we use real numbers and not theory in developing portfolio
The backtesting shown does include "real numbers" over the past 70 or so years, much longer than 22. Past performance does not indicate future performance.
@@OptimizedPortfolio past performance clearly shows performance over entire investment cycle including corrections bear markets and multiple 35%+ drops, that my friend is pressure testing, 22 years is exhaustive
@@joemeyer2726 Ok, let's proceed with that concession. 1. UPRO has only existed since 2009. Where are you getting 22 years from? 2. Your performance claims about 100% UPRO being best are still demonstrably false: www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=4&startYear=1985&firstMonth=1&endYear=2021&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=500&inflationAdjusted=true&annualPercentage=0.0&frequency=2&rebalanceType=3&absoluteDeviation=5.0&relativeDeviation=25.0&leverageType=0&leverageRatio=0.0&debtAmount=0&debtInterest=0.0&maintenanceMargin=25.0&leveragedBenchmark=false&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&benchmark=-1&benchmarkSymbol=upro&portfolioNames=true&portfolioName1=60%2F40&portfolioName2=70%2F30&portfolioName3=80%2F20&symbol1=UPRO&allocation1_1=60&allocation1_2=70&allocation1_3=80&symbol2=TMF&allocation2_1=40&allocation2_2=30&allocation2_3=20
So what are the risks, that Bonds and Stocks crash at the same time? And the counter party risk of the groups providing the leverage? are there any other risks to this?
U can also go 33/33/33 UPRO/TMF/Cash By this you can invest in the crash and also avoid all assets go down at the same time But obviously with higher taxes and less Returns
Imagine the possibilities with combining this with 100% roc from selling premium during volatility. 30% Vol 70% Hedgie, 50% ROI. AMAZING but VERY risky.
hi John, thanks for ur video. I also started looking at this strategy too recently, but just don't really understand why leveraged bond etf? I know that the stock part is for profit, so we want to magnify it by 3X. But if the bonds part is responsible for insurance, why choose leveraged? Replaced TMF by TLT or any other non-leveraged bond etf and run a backtest, performance really dropped.
It's because of the NEGATIVE correlation between the asset classes. It's only with the 3x leverage for bonds too that we can reduce volatility to match that of the S&P 500.
Can anyone do the math on how UPRO would have performed had it existed in 1987? I ran portfolio visualizer for the general US stock market and it returned 36x times the principal. Assuming the dividends were reinvested too. Had UPRO existed in 1987, wonder if it would had at least doubled that return, given the market crashes that happened later on.
Great and informative video! You definitely need more emotion when you talk and maybe to sit further away from the camera as it is quite obvious you are only reading a screen in front of you.
after doing a lot of backtesting I went with TQQQ/TMF 57/36 BTC/ETH 3.5/3.5 with my whole portfolio. Extremely volatile,but medium risk, but I believe it will outperform everything else long-term, even if there is a crash.
The problem with that much backtesting is two-fold: (1) cherry picking percentages for the best risk-adjusted return; and this leads into (2) conflating historic performance for future performance. Your portfolio choices and allocations are extremely limited in terms of diversification and in my opinion suffer from recency bias. Add leverage into the mix and I'm not sure how you sleep at night.
Lol. If there ever was a worse time to do this it was in the 1970s. Stagflation is a instinct possibility. Hedge funds reduce leverage with volatility.
@@OptimizedPortfolio Just imagine. The year is 2060. The S&P 500 is at 3000. The real return of the market from 2021 onwards has been negative. Would you have the will to live? I don't think I would.
@@SenorJoeBiden Which means the negative return of the stock market will affect everyone atleast in the US. Since everyone is negatively affected you won't feel so bad unlike if you had negative returns alone.
Again, we're at most 4 years into what is a 20+ year strategy. Why would you be analyzing/criticizing it right now? Now may even arguably be a good time to get in it with stocks and bonds both depressed. Only time will tell.
Get the portfolio here: Get the portfolio here: optimizedportfolio.com/go/hfea Remember, don't put your entire portfolio in this strategy. These products are extremely risky by their very nature.
If you are in on the strategy, remember it is a LONG-TERM strategy of necessity. Ignore the short-term noise and stay the course.
@5:21 The HEDGEFUNDIE Adventure (UPRO/TMF)
@6:35 Alternatives
👌
Love your blog. Thought to search for a channel, glad to see you doing this
Good luck man
Thanks!
I like a mix of hedgefundy with small leveraged all weather. I am not brave enough to put it all in on hedgefundy, although I think his idea's are solid.
Thanks for watching!
Great video I’ll be recommending your channel
Thanks!
I've had good results back testing with TQQQ, SOXL, UJB, UBT and VIXY. Vixy 5%, UBT 8%, UJB 2%. Split the rest between TQQQ and SOXL. You can also put a few percent between SSO and QLD to reduce drawdowns. They are the same as TQQQ and SOXL except only 2x leveraged.
Sounds like data mining and overfitting.
Data mining and over fitting to a T
I wasn't data mining. I was sharing ideas. I ended up doing 25% Tesla, 12.5 SOXL, 12.5 TQQQ, the rest is in JEPI, SCHD, SDY, GLD, SLV and TMF. 50% risky and 50% safer assets. I recently cut all my leveraged and trimmed back Tesla for now since we're way into overbought territory. Im getting the cash loaded up for the big pullback that's coming. I love to buy the dip.
Here we are in a potentially hyper-inflationary environment. This has been destroyed during the first part of 2022.
Indeed
Okay, I'm intrigued by the idea of risk parity with leverage. I'm going to try to do three portfolios with very small values: Hedgefundie as described, a variant with only 2x leverage (SSO/UBT), and an unleveraged version (VOO/EDV). I'm more curious about their long term performance over anything else.
For 2x you can just do 50% UPRO/TMF and 50% VOO/TLT and save some on fees. Your "unleveraged" version is not the same; EDV is pseudo leveraged. It would just be VOO/TLT.
@@OptimizedPortfolio John, thanks for replying and for your corrections. It should be clear that this level of trading is outside of my expertise!
this strategy got absolutely wrecked in 2022 when the fed raised rates at fastest clip ever, triple levered rates TMF got demolished and the rest of the broader market was wrecked led by high flying tech stocks which comprise the bulk of s&p500
True, but that's why we say this is a long-term strategy of necessity, and if not making regular deposits, starting interest rate regime may affect the final outcome greatly.
TMF is a meme ETF with cultists who continue to defend it despite it's horrific performance.
@@jzen1455 Do you think, it's a meme to hold bonds? TMF is only there for lowering beta.
@@Feds_the_Freds Certain bonds are great hedges during large drawdowns, but it makes little sense to buy leveraged bonds. Bonds are designed to provide to provide consistent low volatility returns. TMF being a 3x bond is much too volatile for a bond hedge, which tanked 70% in 2022.
Could you explain how does PortfolioVisualizer account for Quarterly Rebalance ? For example,let's assume I'm starting to run Hedgefundie today on 10/07/2021, when will be the next balance ? Great channel btw
Honestly not exactly sure. I'd assume it's on a traditional calendar - Jan. 1, April 1, July 1, Oct 1. You can contact them and ask.
@@OptimizedPortfolio it's a very important question since results do change dramatically if you change the rebalance day
@@antoniovianello9663 Over the long term, probably not, as long as it's quarterly. Just follow calendar quarters. Keep it simple.
any idea why its 55/40 vs 60 40 or even 70/30? I read a lot of the post but havnt seen why. Why the exact 55 ratio?
Forgetting exactly why but it's in the original thread.
Another great video
Thanks!
i just started to learn how to invest ,your videos and blog are awesome!and since i am 25 years old,i would also like to try 55 percent upro and 45 percent tmf .
Thanks!
This strategy can be applied mostly in a Roth account right? For tax purposes
Yes, definitely better in a tax-advantaged account like an IRA and not ideal for a taxable environment. Mine is in a Roth.
@@OptimizedPortfolio why wouldn’t it be good for a taxable account? Because of TMF? UPRO is pretty tax efficient.
@@Jeffcatbuckeye Mainly due to the necessary rebalancing.
Does EDV pay EDV "tax-exempt" quarterly dividend or does it pay a "qualified" dividend or ?
STRIPS (EDV) don't have a coupon payment, but you'd still pay tax on the imputed "phantom interest."
@@OptimizedPortfolio according to SeekingAlpha, EDV pays a quarterly distribution (ref: seekingalpha.com/symbol/EDV/dividends/history ). And according to Vanguard, EDV pays a quarterly dividend and also capital gains (ref: investor.vanguard.com/etf/profile/distributions/edv ) What support or documentation do you have that they don't actually pay a distribution?
@@manp1039 I guess the fund is doing the phantom interest for you. Or capital gains from the bond rollover. STRIPS by definition don't pay a coupon. It's "stripped." Hence the name. Here's more on the subject:
www.bogleheads.org/forum/viewtopic.php?t=346035
www.bogleheads.org/forum/viewtopic.php?t=44327
Excellent presentation ❤
Thanks!
Apologies for a naive comment - why don't we simply use a Tailing stop loss (of say 10%) on a 100% UPRO (or even TQQQ) position? I did a simulation of this for UPRO and you can see that my positions would have been sold at the start of the pandemic-driven melt-down in 2020 (and on no other occasions before that). This way, you can enjoy the bull run given by UPRO and get out of the market in a timely manner.
Trailing stop losses are usually a great way to completely miss out on the recovery back up.
Market timing DOESN'T WORK! Get it through your thick heads!
@@jackieboy1593chill man 😂
Great video John! I've read a great deal of the HF Thread and I keep asking myself (as an investor with a very long horizon), why would some people advocate for an entire portfolio with 100% stocks but when it comes to the HF strategy, they wouldn't invest 100% of their portfolio on it. Backtesting shows almost an equal and sometimes (depending on start date) a slightly better sharpe for HF. What are your thoughts on this?
Because we don't know the future in regards to correlations and interest rates, and these leveraged funds could crash in tandem. Basically, this thing could go to zero or could at least underperform the market.
@@OptimizedPortfolio Thanks for your response!
In what escenario would you think it would be possible for both funds to go to 0? And would you consider it very unlikely?
Just recently I added a mix of PSLDX and HFEA as part of my agressive AA. Your website content has been of great help to further conceptualize a lot of topics like risk parity in portfolios with leverage.
It shows that you put a lot of effort and analysis into your work!
@@davidmojica9401 Thanks for the nice words! Basically we're concerned with something like a crash in a rising rate environment and potential runaway inflation that could cause stocks and bonds to crash in tandem. Pretty unlikely. But adding a dash of gold may be sensible.
You’re funds won’t go to zero however 3x leverage can diminish your capital to such a low amount during severe or long drawdowns(87, 00-02, 08, 20) that it can take years to re-establish enough capital to appreciably grow your investment. TMF provides a leveraged treasury hedge during drawdowns, which can be rebalanced AKA reinvested back into UPRO…..which maintains your capital investment in UPRO maintaining your fund growth long term.
@@OptimizedPortfolio Would you consider the current economic situation exactly a rising rate and runaway? inflation?
So, if I understand you correctly, HFEA is essentially a 60/40 stocks/bonds portfolio, but on steroids, meaning 3x leverage? Do you still follow this strategy, despite 2022? If so, could you explain why?
Correct. I have a small lottery ticket in HFEA, yes. This video is the explanation why.
@@OptimizedPortfolio just wondering: is there a 2x alternative? And how did that perform?
Excellent channel, long term (multi decades) and maximum performance, why not 90% UPRO 10% cash rebalanced as often as possible?
Thanks. Already explained this in the video. We WANT greater volatility of the "hedge" to closer match that of UPRO. Historically, anything less than 30% bonds was suboptimal IIRC.
@@OptimizedPortfolio no value in hedge if multi decade time horizon
@@joemeyer2726 Not sure how or why you concluded that.
Is it true that UPRO could actually go to $0?
Theoretically, yes. Realistically, probably not. The fund resets daily and we now have market circuit breakers that halt trading.
@@OptimizedPortfolio Thanks for the quick response. Really looking forward to more content like this.
Is there a way to make m1 automatically do rebalance every few months?
No, though you could set up automatic transfers and if the deposits are large enough, they'd do the rebalancing for you, as M1 buys the underweight asset.
UPRO +11,989% vs SPY +312% over last 22 years, so I will take the “time decay” on UPRO, suggest we use real numbers and not theory in developing portfolio
The backtesting shown does include "real numbers" over the past 70 or so years, much longer than 22. Past performance does not indicate future performance.
@@OptimizedPortfolio past performance clearly shows performance over entire investment cycle including corrections bear markets and multiple 35%+ drops, that my friend is pressure testing, 22 years is exhaustive
@@joemeyer2726 I can't figure out why you think looking at a 70 year history is somehow inferior to only looking at 22 years.
@@OptimizedPortfolio 22 years actual performance while 70 years is a guess based on what UPRO attempts
@@joemeyer2726 Ok, let's proceed with that concession. 1. UPRO has only existed since 2009. Where are you getting 22 years from? 2. Your performance claims about 100% UPRO being best are still demonstrably false: www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=4&startYear=1985&firstMonth=1&endYear=2021&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=500&inflationAdjusted=true&annualPercentage=0.0&frequency=2&rebalanceType=3&absoluteDeviation=5.0&relativeDeviation=25.0&leverageType=0&leverageRatio=0.0&debtAmount=0&debtInterest=0.0&maintenanceMargin=25.0&leveragedBenchmark=false&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&benchmark=-1&benchmarkSymbol=upro&portfolioNames=true&portfolioName1=60%2F40&portfolioName2=70%2F30&portfolioName3=80%2F20&symbol1=UPRO&allocation1_1=60&allocation1_2=70&allocation1_3=80&symbol2=TMF&allocation2_1=40&allocation2_2=30&allocation2_3=20
So what are the risks, that Bonds and Stocks crash at the same time? And the counter party risk of the groups providing the leverage? are there any other risks to this?
You pretty much covered them. A rapidly-rising rate environment may be a catalyst for that first one, but I think it's an unlikely scenario.
@PrimarySF Diamond hands, as the kids say nowadays. ;)
U can also go 33/33/33
UPRO/TMF/Cash
By this you can invest in the crash and also avoid all assets go down at the same time
But obviously with higher taxes and less Returns
6:22 ...I put my entire portfolio into this strategy. (TQQQ/TMF)
How is the Performance so far?
update?
4:40 interesting point about hyper inflation that we are experiencing now at 7.5% inflation on Feb 2022.
Edit: A record since 1982.
It's like, once you make an assumption that something will never happen again, that's exactly when it happens.
Indeed :(
Good video. Only feedback, you can show more of slides, charts or animation. Hard to follow by just looking at you. Thanks!
Working on incorporating more of those nowadays. Thanks for the feedback.
Does psldx pay a qualified dividen?
No
How much of your Roth IRA do you have in this? Just curious
$10k one-time lottery ticket
probably wise to also add gold or commodities. this portfolio does not do well during inflation
Indeed, even if only to lower volatility
Imagine the possibilities with combining this with 100% roc from selling premium during volatility.
30% Vol 70% Hedgie, 50% ROI. AMAZING but VERY risky.
Thanks for watching!
hi John, thanks for ur video. I also started looking at this strategy too recently, but just don't really understand why leveraged bond etf? I know that the stock part is for profit, so we want to magnify it by 3X. But if the bonds part is responsible for insurance, why choose leveraged?
Replaced TMF by TLT or any other non-leveraged bond etf and run a backtest, performance really dropped.
Because we need that greater volatility of leveraged bonds to match that of leveraged stocks, otherwise the hedge isn't as useful.
It's because of the NEGATIVE correlation between the asset classes. It's only with the 3x leverage for bonds too that we can reduce volatility to match that of the S&P 500.
Can anyone do the math on how UPRO would have performed had it existed in 1987? I ran portfolio visualizer for the general US stock market and it returned 36x times the principal. Assuming the dividends were reinvested too. Had UPRO existed in 1987, wonder if it would had at least doubled that return, given the market crashes that happened later on.
Check his website. It gives exactly this information.
In the blog post
Great and informative video! You definitely need more emotion when you talk and maybe to sit further away from the camera as it is quite obvious you are only reading a screen in front of you.
Thanks for the feedback and for watching!
What is meant by vulgar monetary policy?
Hah. Volcker.
sheesh kind of harsh when Bonds and Stocks have been correlated lately.
Indeed :(
after doing a lot of backtesting I went with TQQQ/TMF 57/36 BTC/ETH 3.5/3.5 with my whole portfolio. Extremely volatile,but medium risk, but I believe it will outperform everything else long-term, even if there is a crash.
That sounds pretty smart tbh
Interesting indeed!
The problem with that much backtesting is two-fold: (1) cherry picking percentages for the best risk-adjusted return; and this leads into (2) conflating historic performance for future performance. Your portfolio choices and allocations are extremely limited in terms of diversification and in my opinion suffer from recency bias. Add leverage into the mix and I'm not sure how you sleep at night.
update?
@@william_gear enjoying the buying opportunity
....and it's gone meme.
:(
Lol. If there ever was a worse time to do this it was in the 1970s. Stagflation is a instinct possibility. Hedge funds reduce leverage with volatility.
Totally
why does this guy looks like and sounds like an AI
Been asking myself that for years.
@@OptimizedPortfolio Just imagine. The year is 2060. The S&P 500 is at 3000. The real return of the market from 2021 onwards has been negative. Would you have the will to live? I don't think I would.
@@SenorJoeBiden Which means the negative return of the stock market will affect everyone atleast in the US. Since everyone is negatively affected you won't feel so bad unlike if you had negative returns alone.
@@SenorJoeBiden I’m pretty sure the entire world would cease to exist if the S&P was at 3000.
This aged extremely poorly
How so? We're at most 4 years into what is a necessarily long-term strategy. I'm also up roughly 20% from when I started with my lottery ticket in it.
Pay this kid and follow this strategy back when he proposed it and you got wiped out
Again, we're at most 4 years into what is a 20+ year strategy. Why would you be analyzing/criticizing it right now? Now may even arguably be a good time to get in it with stocks and bonds both depressed. Only time will tell.