Risk and Execution · Lesson 3 of 41234
The question
How much of my account can I put into one fund without one bad stretch wrecking it?
The idea
- Most people pick an amount first. A sounder process runs the other way:Set a loss limit. This is the most you accept losing on one position, in dollars. It is often a share of the account.Find the fund's worst fall. This is its max drawdown, the biggest drop from a high to a later low, which the Beginner course calls the worst fall.Divide. Position size = loss limit ÷ worst fall.
- Then remember: the worst fall so far is a floor, not a ceiling. The future can be worse. ETFIQ's scorecard measures on weekly closes, so a deeper daily low can sit inside a week.
Worked example
The 4 steps beside the drawing at the top work this through on ETFIQ data. Point at a step to light the part of the drawing it describes.
From the scorecards on two fund pages, as of Nov 10, 2026. TQQQ and QQQ cover February 2010 to November 2026 (872 weekly returns). SOXL and SOXX cover March 2010 to November 2026 (868).
| Fund | Worst fall |
|---|---|
| QQQ | −35.1% |
| TQQQ (3x QQQ) | −80.4% |
| SOXX | −44.4% |
| SOXL (3x SOXX) | −89.8% |
Each loses about $5,000 if its worst fall repeated. The 3x funds get under half the dollars. Their worst falls were 2.0 to 2.3 times their index's, not 3 times, because losses compound on a shrinking base and nothing falls more than 100%.
A −80% fund needs to multiply about five times to get back.
This is why a leveraged fund's worst fall so far is the weakest guide of all. See lesson 1 on how swings compound.
The common mistake
"The worst fall so far is the most I can lose." It is only the worst so far, on weekly closes. SOXX's worst fall was −44.4% and SOXL's −89.8%. A deeper index fall would take SOXL deeper still. Size from history, then leave room for worse.
Check your understanding
Pick an answer to see why. Two of three right passes the lesson.
1. You set a $3,000 loss limit. A fund's worst fall was 60%. What size does the rule give?Answer: C. $5,000. $3,000 ÷ 0.60 = $5,000. Not A: $1,800 multiplies the limit by the fall instead of dividing.2. A fund fell 75% from its high. What gain does it need to get back?Answer: C. +300%. 1 ÷ 0.25 − 1 = 3, or +300%. Not A: the gain is measured on a much smaller base than the fall was.3. Why is a leveraged fund's worst fall so far a weak guide to its future worst?Answer: A. One large daily fall in the index, times the multiple, can exceed anything in its history. a 3x fund takes about 3 times any single day's fall, so one rare day can set a new low. Not C: weekly closes can miss a deeper daily low, so they understate falls, not overstate them.
Takeaways
- Set the loss limit first, then size: limit ÷ worst fall.
- Treat the worst fall so far as a floor and leave room for worse, most of all in leveraged funds.
- Check the climb back: a −80% fall needs +400% or more to recover.