Many a times it can be a very complicated task to determine the most advantageous way to profit from a decline in the overall market. So in this kind of market situation exactly what should an investor do to make good amount of profit when the indexes drop? Or what exactly should one do to shield the gains they've already made without selling their investments and possibly getting a tax bill?
There are too many options available, such as puts, are one way. But if you presume wrong, you could lose your money in a relatively short span of time. Shorting stocks is another way round. Even though, this can be riskier than buying options, as the losses may exceed your initial investment.
Reverse market mutual funds or reverse exchange-traded funds (ETFs) may be a solution for the above mentioned problem. They offer professional management and could be safer than investing in options or shorting the market. Though, these funds are not for the weak of heart. Long-term investors can get trapped off guard and burned by a bullish rally. And expenses can be very high.
Reverse market funds, also called as bear-market funds or short-funds and is available in two different investment styles - reverse index and actively managed. Both are specially meant to make money only when the market goes down.
Reverse market funds will try to reduce your exposure to the market without selling the securities you own and taking taxable gains. You may even win big when the markets fall over, or you may perhaps earn back prior market losses. Despite the fact that, these funds - especially those that use leverage to magnify potential returns - can drop money quickly in market rallies, and are best used to regulate portfolio risk.
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