Why Long-Term Investors Often Regret Leveraged ETFs

When you’re seeking the best long term ETF to build retirement wealth, it’s tempting to chase the highest returns. Look at the numbers: UltraPro S&P 500 ETF (UPRO) has delivered 26% gains over the past year, while the more conservative Vanguard S&P 500 ETF (VOO) returned just 15%. For long-term investors, this performance gap looks attractive. But dig deeper, and you’ll discover why many seasoned investors avoid leveraged ETFs entirely.

Understanding 3x Leverage: The Daily Trap

UltraPro S&P 500 ETF isn’t your typical index fund. It’s a leveraged ETF designed with a specific—and limiting—daily target: to deliver three times the daily return of the S&P 500 index. If the market rises 1% in a day, UPRO aims for a 3% gain. Sounds profitable? The problem is that this mechanism works in reverse just as effectively. During market declines, your losses also triple on a daily basis.

The ETF’s own disclosure makes this clear: “For any holding period other than a day, your return may be higher or lower than the Daily Target. These differences may be significant.” This warning should give long-term investors pause. A tool designed around daily targets becomes fundamentally mismatched with long-term wealth building.

The Math Problem That Compounds Your Losses

Here’s where basic arithmetic reveals the trap. If an investment drops from $100 to $50 (a 50% loss), you need a 100% gain just to break even. This asymmetry works powerfully against you during market downturns when holding leveraged ETFs.

Consider what happened in early 2025. The market experienced a sharp correction that affected all investors, but UPRO holders suffered disproportionately. Because the 3x leverage amplified the decline, they faced a much steeper hole to dig out of compared to VOO holders. The recovery had to overcome a far larger percentage loss, making it exceptionally difficult to catch up.

Why UPRO Underperformed Despite Market Gains

This math problem explains the data. Despite being designed to deliver three times the S&P 500’s return, UPRO gained only 26% while VOO rose 15% over the past year. If leverage had worked perfectly over the entire period, UPRO should have achieved roughly three times VOO’s performance—around 45%. Instead, it significantly lagged that expectation.

The culprit: the 2025 market decline created such a substantial drawdown for UPRO that even the subsequent gains couldn’t fully compensate. The damage from the daily compounding effect during the downturn proved too severe to overcome.

Finding the Best Long-Term ETF for Your Portfolio

The lesson here matters for anyone building long-term wealth. Leveraged ETFs aren’t inherently evil—they serve a purpose for experienced traders making tactical short-term bets. But for long-term investors seeking the best long term ETF holdings, they present a risk-return profile that favors pain over gain.

The core issue is volatility drag. The daily reset mechanism means that leveraged ETFs consistently underperform their theoretical targets over extended periods, especially during volatile markets. Unless you’re prepared to endure the severe drawdowns that come with bear markets—and can accept subpar long-term returns despite impressive short-term gains—traditional index funds like VOO remain the superior choice for building sustainable retirement wealth.