The Risks of an Inverse ETF

Investing in an inverse ETF (exchange-traded fund) is becoming a popular thing to do in uncertain financial markets. The ETF is a very diversified way to invest, but it still requires the assets that make up the ETF to do well in order to make money. With an inverse ETF, you do not have to worry about the market going up in order to make a profit. While it can be a beneficial way to invest, there are some risks associated with an inverse ETF. 

Risks of Inverse ETFs

  • The market raising is bad--When you invest in an inverse ETF, you actually want the market to do down. If the index that your ETF tracks goes up, you lose money.
  • History is against you--Even though sometimes the markets tend to be down, historically, the markets go up over the long run.
  • Need perfect timing--In order to properly benefit from an inverse ETF, you have to know when the market is at a high point and buy. Then you have to sell it near the bottom of the market in order to make money. 

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