The stock market has been doing well lately. Contrarian investors consider this a good reason to expect a drop or a temporary bear market. When everyone thinks stocks are on their way up, enthusiasm can lead to values that are unrealistic.
Any seasoned investor knows that the conviction that stocks won’t go down is dangerous. The market is said to climb a wall of worry. Prices climb when there are people who think they won’t. This balance of selling pressure and buying enthusiasm keeps the market in balance and avoids an “overbought” condition.
An inverse exchange-traded fund (ETF) makes money when stocks go down in price. If the index the fund follows goes down 1%, the inverse ETF goes up 1%. Money managers achieve this by “shorting” the stocks on the index. (See also: Inverse ETFs Can Lift A Falling Portfolio.)
Inverse ETFs bet against the market and prosper when stock prices fall. (See also: Indexing Beats Active Management in a Bear Market.)
We have selected four ETFs for a bear market that are designed to short the market and make you money when stocks fall. The selections were made based on total assets. We did not select year-to-date yield as our criteria because the market has been rising, and inverse ETFs would not be expected to have much of a yield in that situation.
You can put these ETFs on a watch list, and if you see signs of trouble in the marketplace, you will be ready to jump in and take advantage of a decline. All figures are current as of September 12, 2017.
SH uses the S&P 500 as its benchmark. It aims to match the performance of that index if it starts going down. It does this by investing in derivatives. This can include futures contracts, swaps, and…