You're just not feeling it anymore.

Everywhere you look, the stock market seems overvalued. Companies are still at or near 52-week and all-time highs. Then the warning shots were fired across our collective bows on Feb. 27 and March 13. There's too much debt, too much risk and anxiety, too many geopolitical uncertainties.

So how do you make money now? How do you hedge your bets and still get to The Millionaire Zone?

Sure, you can pull in the reins and adjust or sell some of your holdings, as I recently recommended.

Or, you can sell short -- borrowing shares and selling them, hoping to buy them back later for less. Nice, if it works.

But suppose you short highflier OfficeMax ( OMX) for $53. OMX has doubled in a year, and you can't see why it should have, with Office Depot ( ODP) and Staples ( SPLS) around every corner.

To short, you must borrow the shares -- that means margin. And, believe it or not, you also have to reimburse the owner for the 60-cent dividend.

Worst of all, your downside risk is the moon. Suppose a private capital firm buys it out? What about a Goldman Sachs upgrade, like the one on March 21 that sent Office Max up 5%? The rest of the market might tank, but you lose, not one but three ways, by shorting the wrong individual stock.

So here's a good alternative.

Let's first review the downsides of shorting individual stocks, ETFs or other securities:
  • Unlimited downside risk
  • Requires a margin account and borrowing shares on margin
  • Lender is reimbursed for dividends
  • If it's an individual stock, you can guess the market right and still lose

So here's the alternative. Last summer, ProShares, a fund company specializing in index funds, introduced a series of long and short ETFs based on simple indices: the S&P 500, the Dow, the Nasdaq 100 and the S&P MidCap 400. No news here -- there are tons of funds covering these areas.

Click here for the video version of this story from Jennifer Openshaw.

But here's the novelty. ProShares introduced two ETF series based on these indices as short funds. If you buy ProShares Short Nasdaq QQQ ETF ( PSQ) shares, the fund rises in value matching the drop in the index. A 5% index drop would cause PSQ to rise about 5%.

Still more creative: The ProShares Ultra series doubles your bet. Buy Ultra Nasdaq QQQ ProShares ETF ( QID) shares, and they will go up double the rate of the decline in the underlying index. If the index drops 5%, your investment gains 10%. Likewise, it'll go down at double the rate if the index goes up.

Now why would you go with the ProShares solution? The reasons are pretty simple:
  • You're buying a security. No margin, no interest, and your risk of loss is limited to the value of that security. So this offers peace of mind.
  • You get leverage. Especially with the ultras, you tie up relatively little investment capital to hedge a downturn. This enables individual investors to play like the big boys.
  • You're diversified. You aren't vulnerable to the "news risk" for a particular stock. And you can work the market -- or a market sector -- with one play.

Recently, in the first two months of 2007, ProShares expanded the concept. The UltraShort Style series use indices based on Russell series. Examples include the UltraShort Russell 1000 Growth ( SFK) and UltraShort Russell 1000 Value ( SJF). For those who aren't ready for the two-times leverage of the Ultra series, ProShares offers regular one-times short versions as well. For a summary, see the ProShares product page.

There are also newer and narrower sector ETFs based on the 11 Dow Jones Sector indices. Now you can buy an UltraShort Real Estate or an UltraShort Financials ETF if you have doubts about these sectors of the market.

The ProShares Web site is easy to use and more informative than many fund sites. However, the 0.95% fee structure is a bit heavy for an ETF, which is the biggest downside. And I'd like to see more specialized indices and country indices covered, which will probably happen over time.

I know most individual investors are incurable optimists. Maybe that's a function of attitude. Maybe it's because betting on downturns is more difficult and risky.

But it doesn't have to be difficult anymore -- for me, the new specialized ETFs take away the excuses.

Jennifer Openshaw, a passionate advocate for helping Americans improve their finances and build their personal fortunes, is CEO of The Millionaire Zone and America Online's personal finance editor. In addition to appearing regularly on TV shows such as "Oprah" and "Good Morning America" and on CNN, Openshaw is host of ABC Radio's "Winning Advice" and serves as an adviser to some of America's top corporations. Her new book, "The Millionaire Zone," will hit bookstores in April 2007.

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