Stock Market Correction Coming? Consider ETFs That Go Up When Market Goes Down

If you think the stock market is due for a correction, you have another good choice beside selling your stocks.

Consider buying Exchange Traded Funds (ETFs) that go up when the market goes down.

They are similar to mutual funds, but they trade like stocks and usually (not always, so do your homework) have a lower expense ratio.

My friend Al D’Agosto, a financial planner with Maffe Financial Group in East Hartford and Avon, thinks ETFs that make money when the market or one of its segments is heading south are a good way to hedge your portfolio.

ETFs, especially the ones that are power shares (leveraged), can be real tricky. So do some serious homework before investing in them. Look into the possibility that some of these ETFs can zig when they are supposed to zag.

A couple of examples to check out: DOG, for the Dow 30; BGZ, large caps; SDS, S&P 500; SKF, financials;and QID, high tech (QQQQ).

D’Agosto says his “tea leaves” tell him that we might be due for a short-term correction.

He worries about what is going on in Washington, uncertain global monetary policies, and earnings expectations that are too high.

I don’t know if he is right or wrong, but I did hedge my positions with a couple of ETFs. And keep in mind, for every person who is selling a stock thinking its going down, there is another person buying it, equally believing its going up.

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