Have $5000 – Should You Buy SPXL?

Why Plain Vanilla Investing Is Best

For most investors, the simplest and most effective way to build long-term wealth is by investing in the S&P 500 through low-cost exchange-traded funds (ETFs) like the Vanguard S&P 500 ETF (NYSEARCA:VOO) or SPDR S&P 500 ETF Trust (NYSEARCA:SPY), or mutual funds like the Vanguard S&P 500 Index Fund (MUTF:VIAFX). 

The S&P 500, a broad index of 500 leading U.S. companies, has delivered an average annual return of approximately 10% since its inception in 1957, including dividends, making it a reliable vehicle for steady growth. 

However, active management often falls short. In 2024, S&P Global‘s SPIVA data shows only 35% of actively managed large-cap U.S. equity mutual funds outperformed the S&P 500, and over the past decade, just 10.5% did so consistently. Similarly, actively managed ETFs fare poorly, with less than 20% beating the S&P 500 over 10 years. 

Low-cost index funds like VOO or SPY, with expense ratios often below 0.1%, avoid the pitfalls of high fees and inconsistent manager performance, making them ideal for most investors seeking stable, long-term returns.

Leveraging the Strength of Bull Markets

Enter Direxion Daily S&P 500 Bull 3X Shares (NYSEARCA:SPXL), an ETF launched on November 5, 2008, designed to deliver three times the daily performance of the S&P 500. If the S&P 500 rises 1% in a day, SPXL aims to gain 3%; if it falls 1%, SPXL loses 3%. 

This leveraged approach has led to significant outperformance during favorable market conditions. Since its inception, SPXL has achieved an annualized return of around 25% through 2024, far surpassing the S&P 500’s 10% annualized return over the same period. The total return for SPXL since 2008 is 5,350% compared to the benchmark index’s 811% return.

This impressive performance stems from the structure of market cycles. Bull markets, which often last for years — such as the post-2009 recovery or the 2020-2021 surge — tend to outlast and outpace bear markets, which are typically measured in months. 

For example, the S&P 500’s bull run from 2009 to 2020 averaged gains of nearly 16% annually, amplifying SPXL’s returns exponentially due to its 3x leverage. Over time, this compounding effect during prolonged uptrends significantly boosts SPXL’s performance compared to unleveraged ETFs like VOO or SPY.

Leverage Comes With Risks

However, SPXL’s leverage is a double-edged sword. While it magnifies gains during bull markets, it also amplifies losses during downturns. For instance, in early April, when the S&P 500 plunged 15% due to President Trump’s tariffs, SPXL plummeted 33%. 

Such volatility can be stomach-churning, as a single sharp market correction can wipe out significant gains. Moreover, SPXL’s daily reset mechanism means its long-term performance can deviate from three times the S&P 500’s return due to volatility decay, particularly in choppy markets. High expense ratios, around 1% for SPXL compared to 0.03% for VOO, further erode returns over time. 

Investors must also consider the emotional and financial toll of enduring such swings, as leveraged ETFs like SPXL require constant monitoring and a high tolerance for risk.

Key Takeaways

Whether an investor should buy SPXL depends on their risk tolerance and investment goals. For most, the simplicity and reliability of a low-cost S&P 500 ETF like VOO or SPY remain the best choice, offering consistent returns with minimal risk of catastrophic loss. 

SPXL’s historical outperformance — driven by the S&P 500’s long bull markets — makes it tempting for those seeking outsized gains, but its extreme volatility demands caution. A 33% loss in a single week, as occurred just a few months ago, can devastate portfolios and challenge even the most experienced investors.

SPXL may be suitable for sophisticated investors with a high risk tolerance, a short-term trading strategy, or a strong conviction in a prolonged bull market. However, for the average investor, the potential rewards of SPXL do not outweigh the risks of significant drawdowns and volatility. 

Sticking with unleveraged index funds remains the safer, more predictable path to long-term wealth creation.

 

 

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