Which leveraged S&P 500 ETF is right for you?

of the ProShares – Ultra S&P 500 ETF (NYSEMKT:SSO) and d Direxion Daily S&P 500 Bull 3X ETF (NYSEMKT:SPXL) Both are designed for investors seeking the daily movements of the S&P 500, using derivatives for 2x and 3x daily returns, respectively.

This comparison shows how the two funds stack up in terms of cost, risk, performance, and portfolio construction for everyone considering exposure to the S&P 500.

Beta measures price volatility relative to the S&P 500; Beta is calculated from five years of monthly returns. The 1-year return represents the total return over the past 12 months.

SPXL has advantages in fees and earnings, with a slightly lower expense ratio and higher dividend yield. While these are factors to consider with any investment, they may be less important considerations for short-term trades such as leveraged ETFs.

SPXL is designed for aggressive traders who aim to triple the daily movement of the S&P 500. Nvidia, Appland Microsoft A collection of the above three. Like SSO, SPXL resets its profit daily, which can differentiate its performance from the index over the long term.

SSO, meanwhile, uses the same leverage strategy but targets a 2x daily return on the S&P 500. Both funds are designed for tactical trading — not long-term buy-and-hold investing — because of the combined effects of daily profit reversals.

For more guidance on ETF investing, see the full guide at this link.

Both SSO and SPXL offer leverage to the S&P 500, increasing the potential for income compared to a standard S&P 500 ETF that returns in line with the index. However, they differ significantly in terms of their risk and reward profiles.

SPXL aims to triple the daily return of the S&P 500, while SSO aims to double the daily return. This gives SPXL more potential for profitable returns, but it also carries more risk.

Leveraged ETFs perform best as very short-term investments. Typically, investors only hold for one trading day, or several days at a time. Because both funds reset their profits daily, longer periods can add significant volatility.

If the S&P 500 performs particularly well while you own one of these ETFs, SPXL can maximize that income with its 3x daily leverage. But if the index performs poorly, you can see a faster decline with SPXL than with SSO.

When choosing between these two ETFs, the deciding factor will likely be how much risk you are comfortable taking. If you want to take larger swings in hopes of increasing your earnings potential, SPXL may be the more profitable of the two. For those who want to limit risk with a leveraged ETF, SSO can be a good choice.

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Katie Brockman has no position in any of the stocks mentioned. The Motley Fool owns and recommends positions in Apple, Microsoft, and Nvidia and is short Apple shares. Motley Fool has a disclosure policy.

SPXL vs. SSO: Which Leveraged S&P 500 ETF Is Right for You? Originally published by Motley Fool