Wow, Mr. Echo exclaims, Leveraged ETFs sound really good. My wife and I are considering buying a house in the next few years. In addition to the $3,000 annual savings, we would like to put aside more money every month to reach this goal sooner. Now that I know about leveraged ETFs, it seems like a really good way to make money fast. If I take the money I put aside every month and invest it in leveraged ETFs well be able to purchase our house a lot earlier.

Mr. Square: Im sorry to be a party pooper again, but I think thats a really awful idea.

1. Why does Mr. Square think it is a bad idea for Mr. Echo to invest in leveraged ETFs?

MULTIPLE CHOICE

A. Mr. Echo has a specific goal in mind for his money, so putting funds in an investment that can potentially drastically decrease in value is not a good idea.

B. Leveraged ETFs, like hedge funds, can only be redeemed on a quarterly basis. Mr. Echo will need the liquidity of the money to purchase a house. (false) c. Leveraged ETFs are never as good an investment as inverse ETFs. Therefore, Mr. Echo should invest in inverse and not leveraged ETFs.

C. Leveraged ETFs are never as good an investment as inverse ETFs. Therefore, Mr. Echo should invest in inverse and not leveraged ETFs.

D. Just like leveraged ETFs bet 2 or 3 times on the market, any gains he makes will be taxed at 2 or 3 times the standard rate. The high tax bracket cancels out the advantages of investing in leveraged ETFs.

Over the next few days the idea of leveraged ETFs keeps nagging Mr. Echo. It just seems like such a great way to make money, especially since the market has been going up recently, he tells his wife.

2. If Mr. Echo keeps insisting on purchasing leveraged ETFs, what advice can Mr. Square suggest?

MARK ALL THAT APPLY.

A. Open up a new brokerage account and purchase the leveraged ETFs from them. Brokerage firms give a one year guarantee to new clients. If you lose money in the first year, theyll compensate you.

B. In addition to the money you put aside for the house, put aside more money that you are willing to lose, and only invest that money in leveraged ETFs.

C. Put in a stop loss order with the broker. This way, once you start losing a certain amount of money, the security (leveraged ETF) will be sold and you wont lose it all.

D. If you make money from the leveraged ETFs, dont report it on your tax returns, since theyll charge you a higher tax than you would have to pay on gains from other ETFs.

I UNDERSTAND THAT WE ARE NOT ALLOWED TO POST MULTIPLE QUESTIONS BUT I AM REALLY STRUGGLING IN THIS ONLINE CLASS AND I REALLY NEED HELP. I ALWAYS EMAIL MY PROFESSOR BUT SHE DOESN'T EVEN LIVE IN THE UNITED STATES, SO I ALWAYS GET REPLIES AROUND 1-5 AM, BUT THAT IS WHEN I AM ASLEEP AND CAN'T REPLY.