An ETF (exchange-traded fund) is similar to other

Inverse ETFs Can Lift a Falling Portfolio

(i.e. mutual funds). They are available in almost every important broad market today. This is because inverse ETFs can lift a falling portfolio but you must first understand their unique characteristics, advantages and risks.

Unique Characteristics of ETFs

There are some unique characteristics of ETFs. The main one is that ETFs actually look for investment results that correspond to whats opposite of the benchmark or index that theyre associated with. Derivative instruments (i.e. exchange listed futures and options, swaps, forward agreements, listed options on securities) are typically utilized herein.

Advantages to ETFs

Its really easy to invest in an inverse ETF. All you have to do is by market shares then when you want out, put them up for sale. Of course, youll need investors who want to buy them and who see a future in them if youre to make a profit. As such, youre buying with the anticipation of there being a downturn and not selling anything short. For this reason, you wont need a margin account and can thus forego the costs that are typically associated with them.

You also dont need either a futures or an options trading account. So, you dont have to worry about being knowledgeable or experienced whenever it comes to complex investment strategies. Since ETFs have a limited duration you do need to be careful so that you dont lose most, if not all, of your investment capital though. Nevertheless, theyre still a great way for less experienced investors to gain experience.

With an inverse ETF youll also gain access to professional investment management. This will teach you a lot about sophisticated trading strategies.

Risks with ETFs

While inverse ETFs can lift a falling portfolio, there are still 2 main risks that you need to be aware of:

1. Leverage arises because trading derivatives involve margins. This can lead to some undesirable situations arising such as wild price swings leading to inefficient markets that result in inaccurately priced positions. Ultimately, this could lead to a lower than expected ROI.

2. Investors still need to make informed investment decisions as to when to enter and exit the market. This could lead to dramatic losses if timely investment decisions and proper risk-management techniques arent implemented.

Investment Objectives Using Inverse ETFs

With inverse ETFs you can open a speculative position in a market, sector or industry. These can also be used within your investment portfolio. This is why theyre ideal if your strategy is meant to enhance a strategically allocated portfolios performance instead of trying to outperform the market. Theyre also less risky whenever theyre used as part of a long-term strategy. Inverse ETFs really can lift a falling portfolio by hedging it against market risk. These shares can easily be purchased instead of liquidating individual securities, which can be costly.

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