Generally as a rule we all want the stock market to go up, it feels right , it means things are all well with the world at large.However any of you who have been investing for more than a few years will know that sadly markets do not always go up.So what to do when they start to go down or start behaving in a very volatile fashion like they have been doing lately, I guess there are three things you could do:
1 If you are a long term investor-hold off and wait for the inevitable good times to come back-I find this hard to do sitting through drawdowns watching your capital disappear drop by drop
2 Move to cash, certainly this makes it easier to sleep at night but unless your timing is immaculate it can mean that you miss out on a lot of money making opportunities
3 Use some form of investments that allow you to make money as stocks go down.
I have spoken before about my use of options, however options are not for everyone and in certain accounts(like my ISA in the UK) you cannot use options.Lately there has been a growth in a number of what are being labelled Contra ETF's-basically ETF's that go up when the market declines-they can be on indices such as the Dow, S&P 500 or the Russell or they can also be on certain commodities such as Oil.
I personally like to use Proshares ETF's go here for a list of the short ones that they offer http://www.proshares.com/funds?products=98616&fundType= .They offer a vast range but I tend to favour the more liquid ones such as DOG (Short Dow) or DXD (Ultra Short Dow-twice the index).I also use the PSQ and the QID which are the short and the ultra short on the QQQQ index. These are a great way of either hedging some of your longer term positions or trading to take advantage of some of the volatile swings that we have seen of late. I use them for both purposes.
The advantages of being able to trade the market long and short as well as being able to hedge are immense and can make a real difference to your returns over the short and long term. I urge you to check out the opportunities that are available with using these types of fund.
Over the next few weeks I will share with you some of the ETF's that I will be purchasing and using to try to rid out the volatility in the market that we are currently experiencing.
All for now