More than 20 years ago, investors needed to buy defensive stock positions, sell stock short or buy puts on stocks to hedge their investments in the securities markets.
Investors and money managers can also convert stocks to cash to prepare for a correction, but timing the market is always challenging.
In the last big market crash, even the traditionally safe-defensive stocks crumbled in the wake of the global financial crisis. Stock prices fell roughly 50 percent from peak to trough from October 2007 to March 2009.
However, today there is an array of defensive (or bearish) ETFs that act like puts or shorts. These publicly traded exchange -traded funds (ETFs) may be a solution for those who want to hedge their portfolio with wealth preservation techniques.
Here are five bearish ETFs you could purchase if you think that the stock market will continue to plunge:
- ProShares UltraPro Nasdaq-100 Bear 3x ETF - Symbol SQQQ
- Direxion Financials Bear 3x ETF - Symbol FAZ
- Direxion Emerging Markets Bear 3x ETF - Symbol EDZ
- Direxion Technology Bear 3x ETF Symbol - TECS
- ProShares UltraPro S&P500 Bear 3x ETF Symbol - SPXU
Here are three ETFs that invest in commodities such as gold and silver:
- UGL is a Leveraged Bull ETF that represents 2 times the upward movement of Gold Prices.
- Gold Miners Bull 3x ETF Symbol - NUGT or JNUG
- VelocityShares Silver Bull 3x ETN Symbol USLV
There are some technology Bear ETFs that were priced very high in contrast to their 3 year low. Two examples would be:
- SOXS - The Semiconductor Bear ETF
- TECS – The 3x Bear Technology Index
Overseas and Emerging Markets
If you believe that the emerging markets are reaching their lows, consider investing using ETFs in the offshore markets of: India, Latin America, Russia, and China. There are targeted country focused ETFs such as: YINN for China, LBJ for Latin American, RUSL for Russia and INDL for India.
Cash Is Always Good
Putting a portion of your money in cash is always a good idea particularly if you do not like taking risk in an overpriced market. It is also prudent to convert your investments to cash if you are nearing retirement or a point in your life where you will need the money.
If the Federal Reserve raises rates anymore, there will probably be a correction in the U.S. markets that may bring the Dow Jones industrials and Nasdaq down 20% or more.
It is always difficult to time the market. Remember, the blue-chip stocks came back strongly a year after the 2009 crash because interest rates went to almost zero and TARP money and quantitative easing was engaged.
If you sell when the indexes go low, you may miss the key upward movements in the market. Another concern is that investors should always be careful in selling stocks or investments as there may be various taxes to pay such as capital gains taxes, state taxes and the new Obama Net Investment taxes of 3.8% on capital gains and the Obama Medicare surtax of 0.9%.
Your state and federal taxes on a capital gain sale can be as high as: 20% plus the 3.8%, plus the surtax of 0.9%, plus a state tax of 8-10%. The total is a whopping 33% or higher on a long term gain.
** The use of Leveraged ETFs may require signing an agreement with your financial institution or broker about the risks of investing using leveraged products and services. Please always consult with a licensed professional before making any important decision.
George Mentz JD MBA CWM Chartered Wealth Manager ® is a licensed attorney and CEO of GAFM ® global education, which is an ISO 29990 Certified professional development company operating in over 50 nations. Mentz is an award winning author and advisory board member to several companies around the world in education, charities, and crypto currency.
© 2022 Newsmax Finance. All rights reserved.