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Inverse ETFs

Started by fatwalleter, October 31, 2018, 08:18:46 AM

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Given the current stock market situation , is it a good idea to start thinking about investing in Inverse ETFs ?

ETFs such as SH, SFK, EUM, FXP,....

would love to get other opinion on this.


All of the ETFs you listed rebalance daily, so no I would not invest in these if you mean holding for longer than a day. Expense ratios are high too. I would only ever want to hold these briefly as a hedge for something else I'm doing the same day.

From the page for EUM: "Those holding EUM for longer than a day must be prepared to rebalance their investment in EUM every day in order to avoid being taken for a ride by the mechanics of path dependency and decay."

The summary prospectus for SH is pretty clear too that this ETF is not designed to be "invested in"

My opinion is that if you want to short something, get a copy of Characteristics and Risks of Standardized Options & start reading :)


Be careful with inverse ETF even in a bear market. A bear market is never straight down and thus you could get lots of spike with some gains that could erode on your ETF pricing/position. Inverse ETF can be very dangerous unless you are in the middle of a bear where usually price goes straight down. Bear markets are very volatile at the beginning and end and price erosion on inverse ETF can be a killer.


Be sure to read the prospectus and understand how the specific etf tries to short what you are trying to short. Most do a horrible job at being a true inverse etf. Be extra wary of the leverred short ETFs.

The harder it is to short what the etf is trying to short the worse the inverse etf tracks. Compounding the problem is the invese ETFs generally have the biggest tracking errors when markets are most volatile.


Like they say... a down market can only fall to zero, but an up market has an unlimited ceiling!    ;)

Be careful how hard you bet on the bear.


Rather than trying to short the market, why not just long AAA CORPORATE BOND And 30 year + treasury bonds. If the crap really hits the fan... you will see the bonds rally like stocks.

I also prefer gold vs trying to short the market. Again, when the crap hits the fan... I will guarantee that the fed will Print money like no tomorrow devaluing the dollar. The US dollar goes down, gold goes up. Again it is hard to say when the bottom of next commodity cycle, but it is coming soon. One asset class that is really cheap right is commodities. As you can tell, I am not fan of shorting the market.

My .02 cents


In the long run, timing the market won't end well.

You can buy some short ETFs to hedge. I don't mind having a CORE position, and trading around with about 20% of the portfolio. But going into cash or a bond ETF is my preferred way, b/c at least by going into cash, you can't lose BOTH ways.


Young And The Invested

I do wonder if I would have the nerve to pull the trigger on buying SPXS or some other inverse ETF during a downturn.  The problem is getting upside down on that.  What if you think a bear market is coming but want confirmation before making your purchase? 

If you waited for a 20% pullback to buy the SPXS ETF in December, you'd have purchased at the exact wrong time. As Sam said, trying to time the market is a fool's errand.

For reference, I am glad I held the course during the pullback when I was down big.  I am also glad I didn't buy any inverse ETFs to take advantage of the volatility.