How Small Routines Build Financial Freedom

Debt vs. Leveraged ETF: What’s the Smarter 2x Strategy?

---

10-Year ETF Reality Check Series_part 3

This post is part of a 4-part series analyzing long-term ETF strategies, risks, and smarter investment paths.

---

When 2x Exposure Isn’t the Same

Let’s say you have $10,000. You want more exposure to the stock market—double, in fact. Should you borrow another $10,000 and invest it all in VOO? Or should you go with SSO, a 2x leveraged ETF? On the surface, both give you a 2x position. But under the hood, they behave very differently.

The Setup

We tested 3 strategies over a 10-year period (2015–2024):

• 💳 VOO + $10,000 Loan @ 3% interest
• 💳 VOO + $10,000 Loan @ 5% interest
• 📈 SSO with $10,000 capital (2x leverage ETF)

Each was benchmarked against plain VOO with $10,000 capital.

Key Metrics Compared

We focused on:

• 📈 CAGR (Compounded Annual Growth Rate)
• 📉 Max Drawdown
• 📊 Volatility
• 📉 Worst Year Return

Here’s What We Found

1. CAGR: VOO with 3% loan returned a higher net CAGR than SSO.

2. Risk: SSO had significantly higher volatility and a deeper drawdown (over -60%) compared to debt-financed VOO.

3. Resilience: The debt-based VOO portfolio weathered downturns better and recovered faster in most scenarios.

Why This Matters

If your goal is to boost long-term returns without exposing yourself to ETF-level volatility decay, debt-based investing may offer a middle path. 💡 Lower interest rates + a disciplined repayment plan = a more stable 2x strategy.

But Wait—What About Risk?

Of course, debt introduces its own risks. If the market tanks and you're on margin or holding a loan, you're still on the hook. However, the drawdowns in SSO were more severe and emotionally draining—requiring stronger conviction to hold.

So Who Should Consider This?

This approach may work for investors who:

• Have access to low-interest capital (e.g., 3–5%)
• Are disciplined with cash flow and debt management
• Want to enhance returns without daily rebalancing or compounding distortion

Final Take

If you’re choosing between 2x leveraged ETFs and debt-financed index investing, know this:

SSO may grow faster in a straight-up market—but it’s also more fragile when volatility hits.

In contrast, borrowing at a manageable rate to double your index exposure may offer a better balance of risk and reward for steady-minded investors.

I hope this note brings a little more clarity, calm, and richness to your life.

---

Read the Full Series:

• Part 1 – VOO vs QQQ: Which Index Fund Wins Over the Long Term?
• Part 2 – Are Leveraged ETFs Really Worth It?
• Part 3 – Debt vs. Leveraged ETF: What’s the Smarter 2x Strategy?
• Part 4 – Why Buy Individual Stocks When ETFs Are Already Diversified?

---

Let’s meet on X , too.
(Follow Olivia for more slow thoughts and steady growth)

Back to HOME
Better Living Notes