Frendly Reminder for new bears: Don’t hold inverse ETFs overnight.

by biochemguy

Just doing some due diligence, something I suspect many of you haven’t done.

www.ally.com/do-it-right/investing/long-inverse-etf-strategies/

” Don’t use inverse ETFs to hedge your portfolio against a longer-term downswing in the markets. This is a mistake because of the disadvantage of daily rebalancing. ”

Go ahead and read that page from the start before you throw your fresh cash into inverse ETFs because you aren’t approved for options yet.

Cheers!

Edit: Here’s a GoogleSheet to show you day by day the changes. Imaging a slow bear market that goes down 10% one day, then up 9% the next day. Over 3 weeks the market drops 9%, and you think your bear hold of the inverse ETF is awesome! Except! Your inverse ETF, while mirroring the market daily, only gained 0.9%. You got exactly 1/10th of the market value. And if the market traded sideways you’d really be screwed, losing money daily while the market is flat.

 

Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence.