Being a Couch Potato is about buying, holding and rebalancing over the long term. Exchange-traded funds are great tools for index investors, but not all ETFs are designed for Couch Potatoes. In fact, some are nothing more than gambling instruments.
Readers may have noticed that my list of Canadian ETFs does not include most of the offerings from Horizons BetaPro. That’s because many of the ETFs from this provider are radically different from those of iShares, Claymore and BMO.
Horizons’ so-called leveraged ETFs promise to deliver double the return of the index they track: if the Canadian stock market goes up 2% in a given day, the Horizons BetaPro S&P/TSX 60 Bull Plus should go up 4%. If the index declines, the ETF will lose twice as much. The Bear Plus ETF works the other way around, delivering twice the inverse of the day’s returns: if the market drops 2%, the fund goes up 4%. Canadian investors love these things: they are among the most frequently traded securities on the TSX.
In the hands of a professional, leveraged ETFs may be useful for managing short-term risk.