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Discussion Starter #1
"Yet a third option is to bet against the market, and there are ETFs that can help you do that. The most popular ones are the*Horizons Betapro S&P 500 Inverse ETF*(TSX: HIU) and the*Horizons Betapro S&P/TSX 60 Inverse ETF*(TSX: HIX), which allow you to bet against U.S. and Canadian stocks, respectively."

http://www.fool.ca/2014/04/11/canadas-warren-buffett-predicts-coming-pain-for-investors

Thinking to buy some for my Couch Potato Portfolio (to offset the dropping Index Funds) - would love to know if anybody's doing the same (or why it's not a good idea :))
 

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Terrible idea. You will be paying fees to be long and fees to be short. That's two sets of fees to be market neutral. Go to cash if you have an urge to time the correction.
 

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Discussion Starter #5
I have a couch potato portfolio in my RRSP account, but my husband has 100K+ cash in his - and doesn't want to buy anything at the moment because 1) the prices are too high and 2) believes there'll be a 10-20% correction.

We are both 45, so have 20+ years to invest before we'll need the money for retirement. I like risking, he doesn't :)
 

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seems like a risky and expensive (1.15% MER on HIU) choice to compliment a couch potato portfolio whose entire raison d'etre is to avoid this type of market timing, no?

if you think (since no one knows) there is an imminent and significant correction coming, wouldn't the more prudent bet be to stash that cash in a HISA until the drop, then add to your index funds at the lower prices? At least your 'bet' is then restricted to withholding the cash from being currently deployed in the CP portfolio.

Forgoing the interest earned in the HISA, while also paying the inverse ETF's fee, is a fair swing in *guaranteed* return on that cash...all for what amounts to a gamble. IMHO, not a great idea in the first place, but particularly not a good compliment to a CP portfolio, IMHO.
 

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I have a couch potato portfolio in my RRSP account, but my husband has 100K+ cash in his - and doesn't want to buy anything at the moment because 1) the prices are too high and 2) believes there'll be a 10-20% correction.
No matter how you slice and dice the accounts, it's a common pot of money that belongs to the family (just ask the divorce lawyers). It doesn't make sense to be long in your account and short in his account. The combined position is market neutral.

We are both 45, so have 20+ years to invest before we'll need the money for retirement. I like risking, he doesn't :)
If he doesn't like "risking", inverse ETFs are definitely out.
 

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Discussion Starter #8
seems like a risky and expensive (1.15% MER on HIU) choice to compliment a couch potato portfolio whose entire raison d'etre is to avoid this type of market timing, no?

if you think (since no one knows) there is an imminent and significant correction coming, wouldn't the more prudent bet be to stash that cash in a HISA until the drop, then add to your index funds at the lower prices? At least your 'bet' is then restricted to withholding the cash from being currently deployed in the CP portfolio.

Forgoing the interest earned in the HISA, while also paying the inverse ETF's fee, is a fair swing in *guaranteed* return on that cash...all for what amounts to a gamble. IMHO, not a great idea in the first place, but particularly not a good compliment to a CP portfolio, IMHO.
I'll try to explain the reasoning (although I understand that it's flawed). I just learned about the Couch Potato strategy less than a month ago, and purchased TD Index Funds to give it a try. I don't want to sell them now (because they already fell below book value - plus I'll be paying an early redemption fee - and I do want to keep them long term).

I have some extra cash that I can deposit into my RRSP now (was planning to use it to open a TFSA, but that can wait) And thought that buying Inverse ETFs for the short term (and then selling them and buying more Index Funds after the correction is over) would help me keep zero balance for now.

Yep, trying to time the market - a typical rookie mistake - but hard to resist the urge... :)
 

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Discussion Starter #9
If he doesn't like "risking", inverse ETFs are definitely out.
Yep, you're right - he said he's not ready to bet on his belief in market imminent correction, so he'd rather keep cash for now and buy a Couch Potato recommended ETFs "later". Still doesn't make sense to me, but I already rushed with my decision (by purchasing Index Funds a few weeks ago) - so maybe he's the smarter one :)

Thank you for your advice! :)
 

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No, this is a bad idea. These are day trading vehicles only. They are not meant to be used to take medium or long term positions against the index direction.

Any article or advisor suggesting someone uses these to do anything other than day trading is being negligent, in my opinion. These vehicles are well known to have problems... it's complex

Don't hold them any longer than a few days.
 

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No, this is a bad idea. These are day trading vehicles only. They are not meant to be used to take medium or long term positions against the index direction.

Any article or advisor suggesting someone uses these to do anything other than day trading is being negligent, in my opinion. These vehicles are well known to have problems... it's complex

Don't hold them any longer than a few days.
Excellent post James.
 

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Discussion Starter #12
Any article or advisor suggesting someone uses these to do anything other than day trading is being negligent, in my opinion.
Oh well, maybe website where I read this article is called fool.ca for a reason - or I'm just not ready for their advice :) Entered my email to "discover 1 top Canadian stock for 2014 and beyond!" (turned out to be Enbridge) - and got a letter in my Inbox soon after:

"...and today, you can become a Stock Advisor Canada member at a savings of 50%!

You'll get an entire year of our Stock Advisor Canada "Best Buy Now" picks from The Motley Fool's analyst team for just $149. Again, that's a savings of 50%!"

Thank you for the warning! :)
 

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Motley Fool does have some good articles.

Generally you will see a for and against. So one day you may see the article to consider an inverse ETF as a hedge. The next day you may get a compelling article as to why it is best avoided.

Like everything you can use the sites as a foundation for further research. Read the prospectus. Understand how it works and what you are paying for.
 

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Discussion Starter #14 (Edited)
Generally you will see a for and against. So one day you may see the article to consider an inverse ETF as a hedge. The next day you may get a compelling article as to why it is best avoided.

Like everything you can use the sites as a foundation for further research.
Well, they mostly recommend (or advice against) individual stocks, which I'm not ready to buy just yet :) But I did notice the descrepancies: in their "1 Top Stock" (Enbridge) article it says:

"The dividend yield stands at 2.9%--which might not seem terribly high--but look at the history of dividend increases, and you can see the trajectory."

But in another article Envridge is #3 out of "three less risky stocks" - with less dividend:

"And while they wait, investors in Enbridge are also treated to a 2.75% dividend that keeps creeping up annually."

google says it's 2.74... and I can't help it but start noticing "Welcome Fool | Log in" in the top right corner :)
 

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Discussion Starter #17

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No, this is a bad idea. These are day trading vehicles only. They are not meant to be used to take medium or long term positions against the index direction.

Any article or advisor suggesting someone uses these to do anything other than day trading is being negligent, in my opinion. These vehicles are well known to have problems... it's complex

Don't hold them any longer than a few days.
This is absolutely correct.

These "inverse" ETF's are NOT to be held for any length of time. They DO NOT mirror the movements of an index if it indeed goes down. You are not alone, many people made this assumption when they first came out, only to find they lost money on them even as markets tanked.

This is because they are "re-set" every day. As James said...they should be used ONLY for very short term trading.....

Beware...which brings up another very valid point...if you do not understand something, you should not be investing your hard earned money in it.
 

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Discussion Starter #19
Beware...which brings up another very valid point...if you do not understand something, you should not be investing your hard earned money in it.
Thank you - and thanks to all who recommended People Trust's 3% TFSA (I read all current and some older threads, and saw it mentioned quite a few times) Discussed it with my husband, agreed to open (and max out) his TFSA account with them - and keep it as a short-term thingy (in case we need the money within 5 years)

And I'll save some more (and learn some more) before opening mine (with TD Waterhouse, where our RRSPs are) later this year - and hopefully will have a better idea what to buy then (mine will be a riskier long-term solution)

In the meantime, if correction happens, I'll just buy some more TD Index Funds in my RRSP - as this is what rebalancing should be about, I hear it now :)

Thanks to all! :)
 

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This is absolutely correct.

These "inverse" ETF's are NOT to be held for any length of time. They DO NOT mirror the movements of an index if it indeed goes down. You are not alone, many people made this assumption when they first came out, only to find they lost money on them even as markets tanked.

This is because they are "re-set" every day. As James said...they should be used ONLY for very short term trading.....

Beware...which brings up another very valid point...if you do not understand something, you should not be investing your hard earned money in it.
These inverse ETFS are only good if the [email protected] 500 goes down (for example) three days in a row. Then you can make some good money. You would then sell your position sometime during the third down day.
 
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