The Truth About Leveraged ETFs | #430

In this episode, Ben Felix, Dan Bortolotti, and Kelly Thomas revisit some of the blind spots from their recent discussion about the finances of marriage before diving into a deeply nerdy discussion about leveraged ETFs. Kelly brings a different perspective to questions around spending roles, career sacrifices, financial autonomy, and the mental load of managing household finances.   The main discussion explores leverage, human capital, volatility drag, and the long-held belief that daily resets make leveraged ETFs poor long-term investments. Ben explains how his own thinking changed after feedback from the Rational Reminder community and a growing body of research, arguing that daily resets themselves do not cause volatility drag—volatility does. The conversation examines when leverage might make theoretical sense, why the safety of human capital is a critical assumption, and why what looks optimal in a model may be difficult to stick with in real life.   They also examine the practical risks and costs of leveraged ETFs, including financing costs, swap counterparty risk, extreme drawdowns, and the very different experience of leveraged index ETFs versus single-stock leveraged ETFs. The episode ultimately comes back to a broader financial planning question: if your financial goals can be achieved without leverage, do you actually need the additional risk?   Key Points From This Episode: (0:04:00) Kelly Thomas joins to discuss marriage and money. (2:33:00) Household roles and mental load complicate "spendthrift vs. tightwad" labels. (4:32:00) Career sacrifices (leave, reduced hours, missed promotions) carry lasting financial costs.  (5:37:00) Financial autonomy vs. infidelity—transparency doesn't mean loss of independence.  (6:52:00) Financial control can cross into abuse; independent access to money is essential.  (9:19:00) Ben revisits leveraged ETFs, challenging the idea that daily resets inherently cause decay.  (13:26:00) Historical performance of 3X S&P ETFs shows leverage depends on volatility, costs, and timing.  (17:14:00) Leverage amplifies exposure and volatility, often reducing compound returns.  (21:43:00) Models vs. reality: what looks optimal economically may be impossible to stick with.  (27:00:00) Income risk can coincide with market declines, creating economic and behavioral challenges.  (28:00:00) Diversification across time: spreading equity risk earlier in life through leverage.  (36:15:00) Leveraged ETFs during crises (2008, COVID) show extreme difficulty of holding through drawdowns.  (40:14:00) Leveraged ETFs offer convenience and non-recourse features, but financing costs are high.  (53:00:00) Total costs can exceed 5% annually; single-stock leveraged ETFs face even steeper hurdles.  (58:37:00) Kelly reframes: financial planning is about goals, not maximum returns—money is a tool, not the end.   Links From Today's Episode: WEBINAR | A Conversation With David Booth (November 4, 12:15 ET)* —  https://pages.pwlcapital.com/webinar-a-conversation-with-david-booth *The first 250 Canadian residents to register will receive a FREE copy of David's book, "Stay Calm Sources From Today's Episode — https://zbib.org/455c998cf1784f5299ff981c8b96f6d2 Meet with PWL Capital: https://pwlcapital.com/ PWL Team — https://pwlcapital.com/our-team/ Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582. Rational Reminder on Instagram — <a href= "https://www.instagram.