This ETF Has Turned $10,000 Into More Than $1.5 Million in Just 14 Years -- Should You Buy It Now?

Since the end of the financial crisis about 15 years ago, it's generally been an excellent time for the technology sector. A prolonged period of historically low interest rates helped fuel innovation, the stock market has avoided any major recessions, and most of the largest tech companies have performed especially well.

This has fueled excellent performance in the tech-heavy Nasdaq 100 index. One exchange-traded fund (ETF) that's done especially well is the ProShares UltraPro QQQ ETF (TQQQ -0.11%), which has turned a $10,000 investment into more than $1.5 million since its 2010 inception.

What is the ProShares UltraPro QQQ ETF?

The ProShares UltraPro QQQ ETF is an exchange-traded fund that aims to produce three times the daily returns of the Nasdaq 100 index. It's a type of ETF known as a leveraged ETF, meaning it uses derivative securities and/or borrowed money to amplify returns to a desired level.

In other words, if the Nasdaq 100 rises by 2% on a given day, the ProShares UltraPro QQQ ETF will rise by about 6%. If the Nasdaq 100 falls by 1%, you can expect the leveraged ETF to drop by 3%.

The historical performance has been spectacular

The ProShares UltraPro QQQ ETF has been a spectacular investment, especially for those who have held shares for a long time. Here's how it has performed over certain time periods, compared with the Nasdaq 100 index.

Data source: yCharts. Returns through 5/15/2024.

One thing to notice is that the long-term performance of the ETF is far greater than triple the returns of the Nasdaq 100. This is because the ETF is designed to produce three times the daily returns of the index. I'll spare you a lengthy mathematics discussion, but the general idea is that this is compound returns at work.

It's the same basic reason Warren Buffett's Berkshire Hathaway has produced roughly 20% annualized long-term returns versus about 10% for the S&P 500, but Berkshire's cumulative return since 1965 is 4,384,748% versus 31,223% for the benchmark index. That's the power of long-term compounding when an investment is performing especially well.

Risks and other things to keep in mind

First of all, it's important to note that the stellar long-term performance of the ProShares UltraPro QQQ ETF has a lot to do with fortunate timing. In short, if the ETF had started just before the financial crisis, its performance since its inception would have looked a lot different.

However, it started less than a year after the market bottomed out and enjoyed the longest bull market in history. While a scenario like that could potentially repeat itself, I wouldn't count on it. Any investment's past performance isn't a guarantee of future results.

Also, while a leveraged ETF amplifies gains, it also amplifies losses in tough times. Historically, it isn't rare for investors to lose most or all of their money in leveraged ETFs when times get tough. In fact, when growth stocks crashed in 2022, the ProShares UltraPro QQQ ETF lost more than 60% of its value in less than six months. Only invest if you're prepared to deal with massive swings like this.

Finally, it's worth noting that the ProShares UltraPro QQQ ETF has a relatively high 0.98% gross expense ratio. For context, the Invesco Nasdaq 100 ETF (QQQM 0.01%), which is a non-leveraged index fund that tracks the same benchmark, has a 0.15% expense ratio. This is rather high for an index fund but makes sense, given the specialized and complex nature of leveraged ETFs.

Should you invest?

Unfortunately, there isn't a one-size-fits-all answer to the question, "Is the ProShares UltraPro QQQ ETF right for me?" If you don't have a very high risk tolerance and can't stomach large price swings, it probably isn't for you. If you're OK with the volatility, it could be worth a look, but it would be wise to limit your position size to an amount of money you can afford to lose if things don't go your way.