Inverse ETFs

Bear ETFs are a pretty new investment vehicle. They have become pretty popular ever since they where created. But are they really a great investment opportunity or should the average investor stay away from them?

First things first in case you were wondering what is an ETF they help investors invest into large sectors of the stock market. In the case of an inverse ETF it helps an investor to make money as a specific sector goes down. For example the SH goes up as the SPY goes down. They can really help investors make money as a 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 major problems that come 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.

The second major problem with investing into these is that it goes against the market. On average the stock market has experiences a consistent growth over time. By getting 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.