Question 1

How much is the annual cost difference between TQQQ and QQQ?

Accepted Answer

TQQQ (3x leveraged) has an expense ratio of 0.82%, plus approximately 9.60% in borrowing costs and 0.45% in rebalancing costs, bringing its total annual cost to approximately 10.87%. In contrast, QQQ (1x) only pays a 0.20% expense ratio. The annual cost difference is approximately 10.67 percentage points — on a $100,000 investment, that amounts to roughly $10,670 per year.

Question 2

Why do leveraged ETFs incur additional costs beyond the expense ratio?

Accepted Answer

Leveraged ETFs must borrow funds to achieve their target multiple (borrowing cost). Additionally, they incur trading friction costs (rebalancing cost) from adjusting positions daily after market close to maintain the target multiple. Futures-based ETFs also incur rollover costs when replacing expiring futures contracts.

Question 3

How much do high ETF costs impact long-term investing?

Accepted Answer

Annual costs compound over time, so the impact grows significantly with longer holding periods. For example, an ETF with 10% annual costs would consume roughly 35% of the principal over 10 years through cost accumulation alone. Use ETF Calc's simulator to see the real impact for yourself.

Question 4

Why do Korean and US leveraged ETFs have different costs?

Accepted Answer

The difference is due to the benchmark interest rates used for borrowing costs. US ETFs are based on SOFR (~4.3%), while Korean ETFs use the Bank of Korea base rate (~2.75%). As a result, at the same leverage multiple, US leveraged ETFs have higher borrowing costs.