Reader Question: What Are Inverse ETFs?
Right now, with the stock market in serious trouble, people are wondering what to do with their investments, and looking for other ways to earn money in the market. This reader brings up an intriguing investing idea:
I hear that the stock market is likely to take a rapid dive beyond lows not seen for five years. I have friends that are telling me to pull out stocks and invest in inverse ETFs. What are inverse ETFs?
Investing in inverse ETFs is a rising trend right now because of the nature of inverse ETFs. First, though, it is important to know what ETFs are.
An ETF is an exchange traded fund. Exchange traded funds are funds that are similar to other funds — groups of investments traded as one. However, with an ETF, you trade as though it is a stock. The same rules, commissions and other stock market conventions apply. These are becoming popular because they offer a reasonable chance of growth. However, ETFs are considered risky.
Inverse ETFs
Inverse ETFs offer a different twist. They benefit from “shorts.” Inverse ETFs gain when the market losers. It’s a bet that something will decline in value, rather than gain in value. BloggingStocks offers four interesting inverse ETFs that have especial promise in these perilous times:
- Short Dow 30 ProShares.
- UltraShort Real Estate ProShares.
- UltraShort Consumer Services ProShares.
- UltraShort Technology ProShares.
These are ETFs that invest in several companies in one sector (or in the case of the Short Dow 30, one index), speculating that the sector will fall overall. The farther the market falls, the more you receive from your inverse ETF.
Of course, if the measures the government is taking work to actually shore up the economy, then inverse ETFs will decline in value as the stock market recovers. But they could make a good hedge for some of the stocks you are riding the market troubled out with. Or, if you have the risk tolerance for it, you could stake your future in earning on inverse ETFs.
Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions.
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reader question, investments, exchange traded funds
