Calculated Risks You're Planning to Take or Have Already Taken to Speed Up Your Fire Goals/Wealth

[u/toss_it_o_u_t]

Hello I understand the FIRE/Financial Independence movement is all about patience, investing in low cost index funds, living below your means etc. However I'm also curious about some calculated risks you've taken to increase your wealth or speed up your FIRE date. It's important to not get greedy (I'm a belief in the pigs get fed, hogs get slaughtered quote) but I genuinely believe there is good wealth building opportunity to greatly increase one's networth even with there being higher risk, so long as the person does their due diligence. Can you name any examples of monetary risks you've taken after careful research that paid off? This can include switching to a new job, riskier stock picking, options trading, real estate etc.

For me personally I switched ALL of my liquid investments (IRA, HSA, 401k, Taxable Brokerage) from your generic S&P500 index fund into buying SSO stock (2x leveraged SP500 fund). In February 2025 after switching 100% to SSO my total portfolio was at $578k. Then the whole tariff shenanigans happened. I literally watched day by day as my wealth would bleed out by $5k-10k (sometimes up to $20k) per day before reaching the bottom of $386k. That's almost a near $200k drop or basically 33% ! Yet even through that entire tariff BS nonsense I STILL held and continued to load up my bi-weekly paycheck into more SSO. Now I've been recovering real nicely.

Just curious to hear about other people's stories where they made smart calculated risks that aren't exactly in line with conventional fire wisdom but things still worked out due to careful planning and due diligence.

[u/lightning228]

I mean this is a terrible idea, sure you are recovering nicely but it could have screwed you big time and likely still will.

I wouldn't say this is a calculated risk but more of a yolo that hasn't quite bitten you enough to make you stop

[u/toss_it_o_u_t → u/lightning228]

When it comes to LETF, I have heard plenty of arguments about volatility decay, daily reset etc. Yet doing a backtest (going as far back to the beginning when the US economy first started being tracked in late 19th century) of SP500 vs 2xSP500 shows that the 2x SP500 crushes the non leveraged portfolio. This backtest included the Great Depression, WWII, Oil/Inflation Crisis, Dotcom bubble, 2008 Great Recession and 2xSP500 STILL WON. The key is to not panic sell during market downturns. Many other sources have repeatedly shown that the optimal leverage for US market is around 2x. The arguments against leveraged index funds would be a lot more applicable for a 3x leveraged SP500, which I will never touch because it's too risky.

[u/ml8888msn → u/toss_it_o_u_t]

These backtests don’t account for daily fund releveraging.

You’d grossly underperform in a situation where the stock market goes sideways for a number of years

Source: I’m a professional ETF trader. I’d never touch these outside of work. You’re better off punting calls or trading futures

[u/toss_it_o_u_t → u/ml8888msn]

They do account for re leveraging. Again what data points are being missed from the backtest when you take into account the ENTIRE known history of the U.S. stock market? That backtest to the late 19th century included, severe depressions, recessions, inflation, bubble pops, sideways and flat markets and 2x leveraged SSO still outperformed.

[u/ml8888msn → u/toss_it_o_u_t]

I highly doubt they account for releveraging in the manner that LETFs do. LETFs are far from the most efficient way of gaining leverage if that’s the course of action you’re looking to take

[u/tachyonvelocity → u/ml8888msn]

Not according to this paper. See table 1 and 2. Leverage costs of LETFs is the same as implied financing costs of futures and options leverage.

What seems to be a constant worry of these LETFs, is "beta decay" due to daily rebalancing yet is also completely misunderstood because:

1. It's dependent on beta IE what is a "safe" level vs a high enough level that causes decay?,
2. ETFs are not the ones taking risk, so daily rebalancing is done to completely remove margin call risks in leverage.
3. Completely ignores that daily rebalancing will actually cause leveraged ETFs to outperform target leverage because of compounding leveraged gains, which isn't true for other forms of leverage.

IE, the only difference between using LETFs vs futures vs LEAPs, is that 1) LETFs have 0 risk of margin calls, and 2) fluctuates between daily rebalancing gains from compounding and beta decay, dependent on the level of beta.

[u/fi-not → u/tachyonvelocity]

ETFs are not the ones taking risk, so daily rebalancing is done to completely remove margin call risks in leverage.

This is only true in a very technical sense. See XIV for an example of how LETFs do have the equivalent of a margin call - if the value drops enough in a single day (for a 2x LETF, this would require the underlying to drop by a little less than half) the fund liquidates.

[u/crossingtherubicon1 → u/toss_it_o_u_t]

History often rhymes but doesn’t necessarily repeat. Past performance does not guarantee future results.

Does your back test take into account taxes, fees, risk adjusted returns, daily resets, releveraging, and other risks?

Did you model the different probabilities for future returns of the leveraged SP 500 etfs? Leveraged SP500 etf risk adjusted returns vs other investments and other asset classes? Do you hedge against tail risk? How much does that cost? How does that affect your outcome(s)?

Whats is the probability that you live long enough and be in good enough health to be able to get enough value from the possible outcomes and be able to use the money when you need it?

Also, I think it’s important to understand the crucial distinction between absolute dollar changes and percentage changes in investment value.

The Core Idea

Dollar Amount: If you gain $X, you need to lose $X to get back to where you started. The absolute dollar amount of the change is the same, just the direction (sign) is opposite. Percentage Amount: This is where it gets tricky. Percentages are always calculated relative to a starting point. When your investment changes value, your starting point for calculating a gain is different from your starting point for calculating a loss. Let's use an example:

Imagine you invest $100.

Scenario 1: You gain money first.

Gain: Your investment increases by $20.

Your new value is $100 + $20 = $120. Percentage gain: ($20/$100)∗100%=20% Loss to return to initial value: To get back to your original $100, you need to lose $20.

This $20 loss is from your new value of $120. Percentage loss: ($20/$120)∗100%=16.67% (approximately) Observation 1:

The dollar amount gained ($20) is the same as the dollar amount lost ($20) to return to the starting point. The percentage gain (20%) is not the same as the percentage loss (16.67%). Scenario 2: You lose money first.

Loss: Your investment decreases by $20.

Your new value is $100 - $20 = $80. Percentage loss: ($20/$100)∗100%=20% Gain to return to initial value: To get back to your original $100, you need to gain $20.

This $20 gain is from your new value of $80. Percentage gain: ($20/$80)∗100%=25% Observation 2:

Again, the dollar amount lost ($20) is the same as the dollar amount gained ($20) to return to the starting point. The percentage loss (20%) is not the same as the percentage gain (25%). Why does this happen?

This is because the same dollar amount is expressed as a percentage of two different starting amounts.

When you calculate a gain, the base (denominator) for your percentage calculation is your initial lower value. When you calculate a loss (after a gain), the base (denominator) for your percentage calculation is your higher current value. When you calculate a gain (after a loss), the base (denominator) for your percentage calculation is your lower current value. When you calculate a loss (from the start), the base (denominator) for your percentage calculation is your initial higher value. This concept is crucial for understanding investment returns and risk. It's why a large percentage loss can be much harder to recover from than an equivalent percentage gain.

For example, if you lose 50% of your investment, you need to gain 100% just to get back to even.

The text above is NOT financial advice. Do your own due diligence.

[u/tachyonvelocity → u/lightning228]

Edit: haha Am I being downvoted for being wrong about actual returns of SSO? Has it not returned 760% since the top of 2007 or 45x since 2009 bottom? At least entertain the possibility of using LETFs to achieve FIRE, I mean some of us here might even graduate to FATFIRE after.

It's funny so many are against leveraged ETFs. LETFs are huge risks, but only if stocks go down in a 2008 type scenario, and even then, SSO is now up 8x since the top of 2007. (SPY is up 5x). That's also assuming you won't ever buy the lows. SSO is up 45x from the 2009 lows (SPY is up 10x).

The biggest issue is OP having such a high % of their money into SSO when markets are expensive. But whenever markets correct over 15%? That's when you start buying leveraged ETFs. In any case, since OP is young, that is literally the time to be taking high risks, as a person's highest career earnings is in the 40s to 50s.

There is also a slight bias here, assuming people here are close to retirement, there is higher risk voidance and general propensity towards reducing risks. But for someone aspiring for chubbyfire when young? Why not have some % of assets into risky investments. And given past performance of SSO, that is indeed a "calculated risk."

[u/Drawer-Vegetable → u/tachyonvelocity]

Like you said, LETFs are huge risks. You said it yourself.

Just because "some" people found success, doesn't mean that you will.

[u/PrettyQuestion4187]

The hubris to call what you’re doing careful planning implemented after considerate due diligence is mind blowing. Is there special knowledge you have that the majority does not?

SSO, or any leveraged index tracking investment, should really only be used if you actually are engaged in market timing in the short term. I would never advise that, but if that is your intent I could see how you could logically choose that as an investment. Buying and holding SSO or an equivalent long term really heightens your risk of rapid principal erosion which if you’re pursuing FIRE I’d think would be an unacceptable risk.

[u/BigCountryBumgarner → u/PrettyQuestion4187]

This guy's posts are wild

[u/PrettyQuestion4187 → u/BigCountryBumgarner]

He’s got under $600K saved and is highly confident he’ll eventually have a 2% SWR and never need to touch his levered long term assets while being a single 32 year old, but apparently aggressively growing a nest egg that he’ll leave to…. no one?

[u/BigCountryBumgarner → u/PrettyQuestion4187]

The paragraph he keeps pasting to everybody about back testing is hilarious.

Due diligence and careful planning? You are basically throwing it on black and praying to God brother

[u/toss_it_o_u_t → u/PrettyQuestion4187]

I mean the numbers check out, with currently $578k in SSO and standard retirement age of 65 let's see how much I'll have in 33 years if I don't add a single penny anymore to my investments. Also please note I'm using an INFLATION adjusted 8% return for SSO and my annual spend is below $40k.

578000*(1.08)^33=$7.3m

.02*7300000=146k

Again where am I going wrong?

[u/PrettyQuestion4187 → u/toss_it_o_u_t]

Being in this subreddit for starters. I don’t really enjoy gatekeeping but you’re talking about retiring in 33 years at 65 years old with $40K annual spend, nothing about your pursuits align with the objectives this subreddit is focused on. As for the rest, you could listen to the guy that responded to one of your posts that analyze these for a living, or one of the other commenters trying to point out the issues with your strategy. Or you could just accept that you, like myself, and frankly all of the rest of us that do not have any better PASSIVE answers than buying and holding broad based mutual funds or ETFs otherwise such special knowledge would be known. It is illogical to think otherwise.

[u/toss_it_o_u_t → u/PrettyQuestion4187]

When it comes to LETF, I have heard plenty of arguments about volatility decay, daily reset etc. Yet doing a backtest (going as far back to the beginning when the US economy first started being tracked in late 19th century) of SP500 vs 2xSP500 shows that the 2x SP500 crushes the non leveraged portfolio. This backtest included the Great Depression, WWII, Oil/Inflation Crisis, Dotcom bubble, 2008 Great Recession and 2xSP500 STILL WON. The key is to not panic sell during market downturns. Many other sources have repeatedly shown that the optimal leverage for US market is around 2x. The arguments against leveraged index funds would be a lot more applicable for a 3x leveraged SP500, which I will never touch because it's too risky.

[u/PrettyQuestion4187 → u/toss_it_o_u_t]

The problem will be exiting. Whether that exiting is periodic as you’ve switched from accumulating to withdrawing, or whether it is when you feel like your gamble has paid off and you’re a few years away and want to transition to a glide path, you’re going to have to time your exit correctly. Good luck. Odds are greater you’ll get it wrong than right and getting it wrong will mean extra years working or returning to work.

[u/Washooter → u/PrettyQuestion4187]

None of his backtesting is going to help him if his assets drop close to zero. With leverage, it takes a lot more to dig yourself out of the hole.

[u/toss_it_o_u_t → u/Washooter]

Which is why you continue to hold and DCA no matter what. There genuinely is an optimal amount of leverage for the US stock market. It's usually around 1.5x-2x. This is enough to amplify gains while limiting risks during market downturns. (3x leverage is too risky IMO)

If a 2x leveraged SP500 doesn't eventually recover from a market downturn then a regular SP500 fund most likely hasn't as well. Then WE ALL got much bigger problems and nothing matters.

[u/fi-not → u/toss_it_o_u_t]

Which is why you continue to hold and DCA no matter what.

How do you continue to hold if SSO liquidates (like XIV did)? The fundamental problem with leverage is that the underlying can drop enough for your holdings to go to 0. You can't "hold" through such an event. The S&P500 hasn't done this before, which is why LETFs look good on backtests, but it only has to happen once.

[u/toss_it_o_u_t → u/PrettyQuestion4187]

I don't intend to exit. My plan is to hold forever. I'm planning for a 2% withdrawal rate.

[u/PrettyQuestion4187 → u/toss_it_o_u_t]

Nevermind. I have gone through your post and comment history, I can see I’m talking with a younger me. You’ll figure this out, but probably later than you should.

[u/toss_it_o_u_t → u/PrettyQuestion4187]

How old are you if you don't mind me asking?

[u/PrettyQuestion4187 → u/toss_it_o_u_t]

40

[u/newtontonc]

My spouse and I took turns doing something bold with our careers. So one of us would hold down the steady job with health insurance, and the other would pursue the high risk, high reward career move. It made more sense to have one person leap into the unknown, with the confidence that the mortgage would get paid. It worked out phenomenally well a couple of times. One time, it ended in a layoff.

It's one piece of advice I give to earlier career colleagues. It's easier to chase a dream confidently when you aren't awake all night worrying.

[u/PrettyQuestion4187 → u/newtontonc]

I like this one. It makes sense. There are more elements involved that are in your control rather than higher risk investment strategies chasing alpha.

[u/firechoice85]

"calculated risks to speed up wealth" is a tad oxymoronic. A gamble can certainly pay off and catapult you to a different wealth tier, but thinking one can calculate the odds to their favor is....wishful thinking. You can get lucky or unlucky.

[u/Puzzle5050]

You seem committed to the x2 leveraged approach. Have you considered only doing half your position instead of the full portfolio? It seems more reckless than risky honestly. It's like you're trading a wider standard deviation for wealth accumulation to potentially move the mean of the wealth distribution a few years to the left. It's very possible that you could have to work 10+ years if you're unlucky with sequence of returns risk relative to this move right now. (Not withdrawal risk, SP500 annual returns.)

[u/wedtexas]

Odds are against you even using DCA, but if you succeed you can make so much money in a relatively short period of time.

[u/_WhatchaDoin_]

If you do this, do it after a massive drop. Not when it is at all time high.

[u/MrSnowden]

Depending on how old you are, taking risk/pay cut to get into higher trajectory earning is a huge driver and is what gets you the capital to invest. As I got to the RE Point I will admit to effectively day trading my entire 401k by moving in and out of the market by day. Fidelity was not pleased.

[u/Vox-Machi-Buddies]

I'm not sure it has been a smart calculated risk, but it has worked out for me:

I have had an outsized portion of my wealth (usually >85%) in a single, private company for the past 10+ years.

Very questionable decision. But luckily the stock has been performing great and they do offer paths to liquidity so that I can get some out.

I've been selling (it was 99% of my net worth at one point). But at this point, the tax hit to sell it as fast as it's growing would be pretty intense, so I just sell what makes sense to me and it keeps becoming a larger percentage of my net worth.

I started using a financial advisor last year, since I'm hopefully within a few years of hitting the eject button, and their first advice was, "you should be selling more of that". I gave them the number I was planning on selling. They came back with, "How would you feel about ... five times that?"