--- title: The ETFs You Should Never Buy description: Leveraged funds that amplify the market's returns can quickly—and unpredictably— magnify risks in your portfolio. authors: - name: Pat Regnier url: https://money.com/author/pat-regnier/ at_money_since: 2009 articles: 53 covers: - Investing - Banking - Economy and Politics - Education - Housing - Insurance - Lifestyle - Mortgages - Retirement - Taxes social: - https://x.com/PatRegnier former_staff: true published: '2014-06-06T20:07:27.000Z' modified: '2014-06-06T20:07:27.000Z' section: Investing tags: - BlackRock - ETFs - exchange-traded funds - iShares - Larry Fink. - Leverage - leveraged ETFs - stocks word_count: 433 canonical: https://money.com/the-etfs-you-should-never-buy/ type: Article source: structured-blocks --- > **Disclosure:** We research all brands listed and may earn a fee from our partners. Research and financial considerations may influence how brands are displayed. Not all brands are included. [Learn more](https://money.com/page/disclaimer/). ![The ETFs You Should Never Buy](https://money.com/content.money.com/wp-content/uploads/2014/06/140601_money_gen_13.jpg?crop=0px%2C733px%2C4780px%2C2689px&resize=1012%2C569&quality=85&strip&ssl=1) Larry Fink, the CEO of giant asset manager BlackRock, [said at a recent investment conference](http://www.reuters.com/article/2014/05/28/funds-etf-blackrock-idUSL1N0OE1HI20140528) that a kind of exchange-traded fund called leveraged ETFs "have a structural problem that could blow up the whole industry one day." BlackRock runs [iShares, a leading ETF manager](http://www.ishares.com/us). ETFs are funds that can be traded like stocks, and they are great, low-cost tools for investing in indexes such as the S&P 500. Leveraged ETF also tracks indexes, but add the twist of magnifying gains or losses. So, for example a "2x" leveraged ETF might aim to deliver twice the return, up or down, of the S&P 500. iShares does not run leveraged ETFs. So you can discount Fink's remarks as at least partly a broadside against the competition. He was also arguing that regulators should focus on specific products, rather than on the size of a money manager — a good point to make when you run $4 trillion, as BlackRock does. It's unclear exactly what system-wide risk Fink is saying such funds pose. That said, this much is true: For individual investors, leveraged ETFs are a no good, terrible, very bad idea. The key thing about leveraged ETFs is that they deliver their leverage on a *daily* basis. You might assume that if, say, the market falls 5% in a year, a 2X leveraged fund might lose 10%, and if the market rises 5%, the 2x fund would gain 10%. But in fact the returns could be quite different over time, especially in a volatile up-and-down market. Fund companies that sell leveraged ETF's disclose this, but the effect of daily leverage is a subtle point some individual investors looking for a more aggressive investment might miss. [The Securities and Exchange Commission](http://www.sec.gov/investor/pubs/leveragedetfs-alert.htm), by way of cautioning investors, provides an example of how this works, which we've turned into charts. Start with a big down day in the markets. One ETF just follows the market index, while another delivers twice the gain or loss. The effect is predictable: ![image-2](https://img.money.com/2014/05/image-21.png) The next day, the market goes back up. The regular fund rises 10%, and the levered fund rises 20%. ![image(14)](https://img.money.com/2014/05/image141.png) Both funds did what they were supposed to do each day. But look what happens when you add up the effects of two days of trading. ![image(12)](https://img.money.com/2014/05/image121.png) The index lost $1, but your twice leverage fund lost four times as much. Daily leverage can be useful to professional investors. Other forms of leverage can be useful to individuals with long-run goals. But few individual investors are likely to be successful with the kind of short-term market timing these funds are built for. ```json { "@context": "https://schema.org", "@graph": [ { "@type": "BreadcrumbList", "@id": "https://money.com/the-etfs-you-should-never-buy/#breadcrumb", "itemListElement": [ { "@type": "ListItem", "position": 1, "name": "Home", "item": "https://money.com" }, { "@type": "ListItem", "position": 2, "name": "Investing", "item": "https://money.com/investing/" }, { "@type": "ListItem", "position": 3, "name": "ETFs", "item": "https://money.com/etfs/" }, { "@type": "ListItem", "position": 4, "name": "The ETFs You Should Never Buy" } ] }, { "@type": "WebSite", "@id": "https://money.com/#website", "url": "https://money.com", "name": "Money", "publisher": { "@id": "https://money.com/#organization" } }, { "@type": "WebPage", "@id": "https://money.com/the-etfs-you-should-never-buy/#webpage", "url": "https://money.com/the-etfs-you-should-never-buy/", "name": "The ETFs You Should Never Buy", "isPartOf": { "@id": "https://money.com/#website" }, "datePublished": "2014-06-06T20:07:27.000Z", "mainEntity": { "@id": "https://money.com/the-etfs-you-should-never-buy/" }, "inLanguage": "en-US", "breadcrumb": { "@id": "https://money.com/the-etfs-you-should-never-buy/#breadcrumb" }, "dateModified": "2014-06-06T20:07:27.000Z" }, { "@type": "Article", "headline": "The ETFs You Should Never Buy", "articleSection": "Investing", "image": [ { "@type": "ImageObject", "url": "https://img.money.com/2014/06/140601_money_gen_13.jpg?quality=85", "width": 4780, "height": 3540 }, { "@type": "ImageObject", "url": "https://img.money.com/2014/05/image-21.png", "width": 800, "height": 346 }, { "@type": "ImageObject", "url": "https://img.money.com/2014/05/image141.png", "width": 800, "height": 346 }, { "@type": "ImageObject", "url": "https://img.money.com/2014/05/image121.png", "width": 800, "height": 346 } ], "author": [ { "@type": "Person", "name": "Pat Regnier", "url": "https://money.com/author/pat-regnier/", "@id": "https://money.com/author/pat-regnier/#author", "image": "https://img.money.com/2014/05/14-05-21_bio_author_reginier.jpg?quality=85&w=190&h=190&crop=1", "sameAs": [ "https://x.com/PatRegnier" ] } ], "publisher": "https://money.com/#organization", "datePublished": "2014-06-06T20:07:27.000Z", "description": "Leveraged funds that amplify the market's returns can quickly—and unpredictably— magnify risks in your portfolio.", "abstract": "Leveraged funds that amplify the market's returns can quickly—and unpredictably— magnify risks in your portfolio.", "@id": "https://money.com/the-etfs-you-should-never-buy/", "inLanguage": "en-US", "dateModified": "2014-06-06T20:07:27.000Z", "wordCount": 433, "keywords": [ "BlackRock", "ETFs", "exchange-traded funds", "iShares", "Larry Fink.", "Leverage", "leveraged ETFs", "stocks" ], "about": [ { "@type": "Thing", "name": "Investment", "sameAs": [ "https://en.wikipedia.org/wiki/Investment" ] }, { "@type": "Thing", "name": "Exchange-traded fund", "sameAs": [ "https://en.wikipedia.org/wiki/Exchange-traded_fund" ] } ] } ] } ```