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Wall Street’s Sucker Bet – Leveraged Inverse Funds

The Wall Street Journal, on June 29, 2018 (“Investors Can’t Get Enough of Wall Street’s Sucker’s Bets”), noted that “people who compare Wall Street to a casino are usually just bitter about a bad experience,” but that “when it comes to some wildly popular products, though, the description fits.”

The products at issue are “funds that trade on the stock market, but have odds resembling a casino game”

As noted in the article, one of these popular products is the Direxion Daily Financial Bear 3X Shares fund “which has lost money on 54% of days and every calendar year since its launch in late 2008.”

“The fund produces three times the inverse of an index of financial companies, so it posted some spectacular gains during the financial crisis. They faded quickly. For example, the fund doubled in four sessions in January 2009 but gave up those gains in the next six. The following month it doubled again in seven days but lost 60% in the next four and then another 50% in the following seven sessions.”

More importantly, the WSJ article highlights the fact that “the savings-destroying combination of volatility and daily compounding is what makes these leveraged inverse funds losing propositions. A $10,000 investment in the Daily Financial Bear 3X fund made in 2008 is now worth about $2.”

If you are an individual or institutional investor who has any concerns about your leveraged inverse fund investments with any brokerage firm, please contact us for a no-cost and no-obligation evaluation of your specific facts and circumstances. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).

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