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Loan-to-Invest Calculator
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Compare borrowing a lump sum to invest at once against dollar-cost averaging — see the break-even return rate and the gap in annualized returns.
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Loan Leverage vs Leveraged ETF
Pick any exposure between 1× and 2×, then see whether a loan or a 2× ETF blend gets you there better — and how rebalancing frequency, your loan rate, and the ETF's costs tip the balance.
Underlying index
Index
Expected return (CAGR)The 1× index's compound annual growth rate. The leveraged fund is built from this — you don't enter it directly.
%
VolatilityHow wildly the index's returns swing year to year. This is the engine of volatility decay: the higher it is, the more a 2×/3× fund bleeds in choppy markets.
%
Target exposure
Effective exposureHow much market exposure you want, between 1× (no leverage) and 2× (the ETF's full factor). Both methods are sized to hold exactly this — the ETF blend mixes the 2× fund with the 1× index; the loan borrows to hold this multiple of the index.
×
Both routes hold the same target exposure on the same index. The ETF blend pays the fund's expense ratio plus its institutional financing; the loan pays your own loan rate. Whoever's all-in cost is lower wins.
Capital & horizon
Holding period
yrs
Fund costs
Your loan rateThe annual interest on your borrowing — margin, mortgage top-up or personal/credit loan. Retail rates are often well above the institutional financing baked into an ETF, which is the loan's main handicap.
%
ETF financing rateThe annual rate the leveraged ETF pays to finance its borrowed exposure — typically near short-term institutional rates, often cheaper than a retail loan. Charged on the fund's borrowed portion.
%
Expense ratioThe leveraged ETF's annual fee, charged on the whole leveraged position (typically 0.9–1.0%). The loan has no such fee.
%
Final outcome
To hold 1.50× exposure on SPY — S&P 500, a 2× ETF + index blend and a loan rebalanced daily are the same machine — 18.6% vs 18.0% median CAGR. The only gap is cost: the loan wins if your loan rate undercuts the ETF's expense ratio plus financing, and loses if it doesn't.
Rebalance the loan less often and it diverges: it dodges some daily volatility decay, but its leverage drifts and a crash can wipe it out before you rebalance — a never-rebalanced loan is ruined in 0.0% of paths (median 17.4%).
Strategy
2× ETF
Loan · daily
Loan · monthly
Loan · yearly
Loan · never
Median final
552K
525K
527K
530K
499K
Median CAGR
18.6%
18.0%
18.1%
18.2%
17.4%
Max drawdownMedian worst peak-to-trough fall across the simulated paths.
−38.2%
−38.5%
−38.5%
−38.5%
−34.1%
Volatility
24.0%
24.0%
24.0%
23.8%
21.8%
Wipeout rateShare of paths where equity hit zero — a margin call that liquidates the position. The daily-reset ETF can't be margin-called the same way, so it shows none.
—
0.0%
0.0%
0.0%
0.0%
The "2× ETF" column holds the 2× ETF blended with the 1× index, rebalanced daily, sized to your target exposure (at 1× it's all index, at 2× it's all ETF). "Loan · daily/monthly/…" is a margin loan at the target exposure rebalanced at that cadence; "never" is buy-and-hold — its leverage drifts with the market.
Median growth by strategy (log scale)
2× ETFLoan · dailyLoan · monthlyLoan · yearlyLoan · neverlog scale
Median of 500 daily-reset Monte Carlo paths per strategy, all driven by the same simulated index. Models returns and costs only — not margin-maintenance rules, taxes or borrowing limits.
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Loan leverage vs leveraged ETF — frequently asked
- Is a 2× ETF the same as borrowing to buy 2× of the index?
- Only if you rebalance the loan every day. A daily-reset 2× ETF resets its exposure to exactly 2× of its value each day. A margin loan rebalanced daily does the same thing — its daily equity return is 2×index − financing, identical to the ETF minus the ETF's expense ratio. Rebalance the loan less often and the two drift apart.
- Does a daily-rebalanced loan beat the ETF?
- Only if your loan is cheaper. A loan and the ETF blend rebalanced daily are mechanically identical, so they differ only by financing cost: the loan pays your loan rate on the borrowed part, the ETF pays its expense ratio plus its own financing. If your loan rate is below the ETF's expense + financing, the loan wins by that gap; if it's above — common for retail personal or credit loans — the ETF wins. Set both rates to your real numbers to see which.
- What is volatility decay, and which method suffers it?
- Daily resetting to a fixed leverage forces you to buy after up days and sell after down days, which bleeds value in choppy, sideways markets — that's volatility decay. The ETF and a daily-rebalanced loan both suffer it fully. The less often you rebalance the loan, the less decay it experiences — but that's a trade, not a free lunch.
- So isn't "never rebalance" the best — more return, no decay?
- It has the highest median return because its leverage drifts down after gains (you become safer just as the bet pays off) and it skips decay. But the same drift levers you up after losses, right when you can least afford it. A buy-and-hold 2× loan gets margin-called to zero in a meaningful share of paths — the wipeout row shows how often. High median, fat left tail.
- Which should I actually use?
- If you want constant, controlled leverage, a daily-reset ETF (or a frequently rebalanced loan) keeps your risk pinned at the cost of decay. If you want to hold and forget, an infrequently rebalanced loan avoids decay but demands a buffer and a plan for margin calls. Neither is "safe" at 2×+ — size the position so a 50% index drop doesn't end you.
- Does the loan's interest rate matter a lot?
- Yes. The loan pays interest on the borrowed portion every day whether the market rises or falls, so a high retail loan rate (personal and credit loans can be far above an ETF's institutional financing) quietly erodes the loan's edge. Set the borrow rate to your real rate to see whether the loan still beats the ETF.
References
- Volatility tax (decay) — why compounding a leveraged return daily erodes value in volatile markets.
- SEC investor alert on leveraged & inverse ETFs — the regulator's warning that these are daily-objective products, not buy-and-hold.
- Rebalancing (Bogleheads) — how periodically restoring target weights controls risk and harvests volatility.
Built by indigo.la.ringo · AppicLab ·
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This calculator answers a practical leverage question: to hold, say, 1.5× the index, are you better off borrowing to buy 1.5× of it, or blending a daily-reset 2× ETF with the plain index to the same exposure? Mechanically the two are the same machine when rebalanced daily — they differ only by cost, so the loan wins when your loan rate undercuts the ETF's expense ratio plus financing, and loses when it doesn't (retail loan rates often do lose). Rebalance the loan less often and it pulls away from the ETF: it escapes some of the daily volatility decay that bleeds leveraged funds in choppy markets, but its leverage drifts with the market and a buy-and-hold loan can be margin-called to zero before you ever rebalance. Set an index's return and volatility, a target exposure from 1× to 2×, your loan rate, the ETF's financing rate and its expense ratio, and a daily Monte Carlo lays the ETF blend beside the loan at four rebalancing frequencies — comparing median wealth, CAGR, drawdown, volatility and the share of paths wiped out.
About the Author
indigo.la.ringo
A software engineer chasing the slash-career dream. Was trying to figure out my relationship with the world — now being forced to figure out my relationship with AI. Lately, obsessed with figuring out the relationship between people and money. Either way, whatever answer I land on, it's fine.