Leveraged and Inverse ETFs

Leveraged ETFs use debt and/or derivative instruments to increase the
sensitivity of an ETF to its index. The ETF manager can buy extra assets with borrowed money and control additional assets through derivatives such as
options and futures. These techniques increase potential reward but also
multiply your risk. For example, you can find leveraged ETFs that offer 2X or 3X returns. A 3X S&P 500 index fund will gain or lose three times the amount

returned by an unleveraged fund. If you are risk-seeking, leveraged ETFs can
provide the additional exposure you crave. Use with caution, because losses
can mount quickly.
An inverse ETF moves in the direction opposite to the underlying index. These
ETFs provide a convenient way to play a bear market in the index. You profit
when the index declines, similar to a short sale. Many inverse ETFs are also
leveraged. When used thoughtfully, these supercharged ETFs can turn modest
investments into large returns. On the other hand, they can also quickly deplete
your capital. Expect to pay higher management fees for leveraged andĀ inverse funds.

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