Exchange-Traded Funds For Dummies, 3rd Edition

Chapter 20

Proceed-with-Caution ETFs

IN THIS CHAPTER

Learning about the pitfalls of leveraging

Understanding the mechanics of bull and bear funds

Recognizing the limits of buffer ETFs

Avoiding very narrow markets

Assuming you are reading the chapters of this book in order, you are undoubtedly by now marveling at the enormous variety of ETFs you have to choose from. Perhaps you are feeling like you have too many choices. In Part 5, I’ll give you some sample portfolios, using good, solid ETFs. Maybe that will help you winnow down your options. But this chapter should also help you, by suggesting entire categories that you don’t need to incorporate into your portfolio, and in fact, you may be better off if you don’t.

I’m going to start with a huge category, with at least 85 ETFs, according to ETF.com. These are the so-called inverse ETFs that promise you can make money when the market loses money. And they do do that…sort of.

Funds That (Supposedly) Thrive When the Market Takes a Dive

In June 2006, an outfit called ProShares introduced the first ETFs designed to short the market. ...