Why Leveraged ETFs Can Be Dangerous Long-Term Investments

Exchange-traded funds are a great way to invest, but not all ETFs are the same. Leveraged ETFs can involve substantial risks, and you have to understand how your ETF works in order to assess and manage those risks.

In this installment of our Retirement Q&A series, Dan Caplinger, The Motley Fool's director of investment planning, answers a question from Bob, who asks whether he should hold on to his shares of the leveraged ETF ProShares Ultra Silver (NYSEMKT: AGQ  ) . Dan notes that it's hard to predict what will happen in the silver market, with economic expansion pointing to greater industrial use of the metal but rising rates from the Federal Reserve potentially hurting precious metals. But Dan further points out that leveraged ETFs are designed to track daily changes, and tracking errors can arise when they're held over long periods of time. Dan suggests that if investors are uncomfortable with those risks, then non-leveraged alternative iShares Silver Trust (NYSEMKT: SLV  ) could be a less risky way to handle the situation.

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