How and Why I Use Short Index Funds
That said, I have also been actively investing long enough to know that markets and stocks do not go up (or down) in straight lines.
Translation: nothing is guaranteed.
So many people now days want guarantees in investing (and life), but that's just not how life rolls.
Furthermore, I think many get caught up in their own emotion and impatience when dealing with money, and this increases the liklihood of being let down when their ideas get too rose-colored and don't work out according to plan.
It is the expectation of something great (or devastating) that catches investors leaning the wrong way every time.
And it is around these emotional, "all-in" times that I decide to hedge or go against the grain.
And in an extended up market, I start to look at short index funds for a hedge and/or short term trade.
Simple as that.
I'm not looking to try and ride out a multi-week pull back and make a fortune.
Heck, I'm not really one to short stocks in general (just not my forte).
What I am most interested in is either: a) protection for current long positions and/or b) making a quick dime on a pullback.
It's all about protecting my hard-earned money and investments by managing risk and playing the unfolding technical odds.
And, no, not the Vegas odds.
Indicators and technical analysis provide me with clues when markets or stocks are getting overbought and/or close to important areas of resistance.
And it is in these areas that I like to layer out of long exposure and into short index funds.
I'm sure many of you have seen technical charts before.
If not, push yourself to do a little research and learn something new - even the basics will help).
Technical charts may seem foreign to the average investor, but if nothing else, block out the stuff that's over your head, and revert to learning more about simple technical analysis metrics like trend lines, moving averages, and support and resistance areas.
Currently, I am roughly 30% short index funds (SH in the S&P 500 index family), and have very little long exposure.
And if the market pushes higher, I may increase this exposure.
Again, this is a short-term trade/hedging vehicle and I will consider taking this investment off if the technicals change.
Note additionally that this is separate of my view of individual stocks/sectors - this is no longer an "all one market," and certain stocks will hold up better than others during a market sell off.
Some other examples short index funds include DOG (short Dow Jones Industrials) and PSQ (short Nasdaq 100).
Happy investing.
Position in SH at time of publication.
Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of his employer or any other person or entity.
The contents are purely for informational purposes and should not be construed as investment, financial, or tax advice.
Readers should consult with a licensed professional financial representative.