Inverse ETFs
Inverse ETFs are one of the newest items on the market. Since they were created it seems like a new one has come out every day. But are these ETFs actually worth investing into? Or are they actually dangerous for the average person?
First things first in case you were wondering what are ETFs they help investors invest into large sectors of the stock market. With an inverse ETF an investor can actually benefit as a specific market goes down. For example the SH goes up as the SPY goes down. These ETFs can be used very effectively when the stock goes down.
They are just as easy to buy as simple securities, all you you need is a broker. But are they really worth investing into? There are a few big problems with inverse ETFs. For starters they do not follow a 1 to 1 correlation with the instrument they are tracking. So if the SPY goes down 2% that does not mean that the SH will go up 2%, instead it relies on a lot of complicated math which may even lead to a few days where the inverse ETF actually moves in the same direction as the underlying market it is shorting.
There is one other big disadvantage to investing into these ETFs, and that is the market tends to go up in the long term. In the past the stock market has gone up on average. By investing into a short ETF you are betting against history.
That does not mean that they are useless, if you are a trader and enjoy making the 1 to 2 day moves on a stock this is a perfect security for you. If you like tading with such short time periods then they might actually help you to increase your returns. For the rest of us it may be better to not invest into them.
