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. ”

We are primarily funded by readers. Please subscribe and donate to support us!

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.

Views:

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.