How do leveraged and inverse ETFs impact portfolio risk and compounding over time?

[madmax]

Leveraged ETFs aim to amplify daily returns (e.g., 2x or 3x an index), while inverse ETFs seek to profit from declines. These products reset daily, meaning returns over multiple days can diverge significantly from the expected multiple due to volatility decay and compounding effects. They are best used for short-term tactical trades, not long-term buy-and-hold strategies, because market swings can erode capital even if the underlying index trends in your favor.

[Nahid Hossen]

Leverage amplifies both gains and losses — compounding makes the long-term effect even more dramatic.

[Rimon Khan]

Great tools for traders, but dangerous for passive investors. Daily resets change everything.

[Abdul Khan]

Saying no is hard, but burnout is harder.