Also realize that the inverse ETFs deliver "double" the return of the market without leverage. For example, if the S&P 500 Index falls 5% in one day, SH should gain about 5%, good for 10% outperformance. If you are wrong in your timing, your losses will be just as large.
Inverse ETFs also reset daily and therefore suffer from compounding--and the volatility we've seen lately will only lead to even greater tracking error. However, for those who want to go short, ProShares Short S&P 500 (SH) is large and liquid, while ProShares Short MSCI EAFE (EFZ) and Short MSCI Emerging Markets ProShares (EUM) cover the international side.
Another option is a mutual fund such as the Federated Prudent Bear (BEARX) or Federated Market Opportunity (FMAAX), two funds I have used for some clients. Retail investors may face a 5.5% load on these funds, which is a major drawback, but if investors can buy them without fees they are solid options. Over the past three months, the S&P 500 Index fell 13%, while FMAAX gained 4.7% and BEARX gained 11.5%.
Just as inflation isn't a strategy in itself, neither is deflation. The U.S. could enjoy an extended bout of very low interest rates and very low inflation or mild deflation, even as the economy recovers.Stocks could rise in that environment, and with dividend yields at attractive levels, a fund such as iShares Dow Jones Select Dividend Index (DVY) could best bonds. Technology may also perform well given the low debt levels of technology companies. The best strategy for most investors is to hold a diversified portfolio of assets. Within that diversified portfolio, small changes in allocations and holdings can make a big difference. For instance, many investors may do better by reducing inflationary bets, rather than making specific deflationary bets. -- Written by Don Dion in Williamstown, Mass.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV