Should You Consider Inverse ETFs in Volatile Markets?
If news about market downturns and an imminent recession is making your head spin, you may be wondering how to hedge your portfolio against losses. One option may be an inverse ETF.
An inverse ETF aims to earn gains when an underlying stock market index goes down. So if the S&P 500 falls by 3% tomorrow, an inverse ETF tied to the S&P 500 should increase by 3% in value. Some inverse ETFs are leveraged and have numbers in their names such as "2X" or "3X." This means these inverse ETFs are designed to multiply the performance of a given index. So if the S&P 500 dropped by 3%, an inverse "3X" ETF would earn a 9% gain.
Inverse ETFs are considered to be volatile financial instruments better suited for experienced investors who are willing to monitor the performance closely and trade daily. Still, inverse ETFs can play a role in a well-diversified portfolio and investment strategy.
Source Fool.com
