The ability to make money in a down market without having to sell stocks short or buy put options is not a far-fetched fantasy. You can make money buying and selling ETFs in much the same way that you make money buying and selling stocks.

ETFs (exchange-traded funds), or bear market ETFs, work like this: If you want to make money when the market is on the decline, purchase shares in a particular ETF and a set average or index will be shorted for you. The value of the ETF increases by the same amount that the average drops - on a percentage-point basis. Therefore, you don't have to buy on the margin, as with regular short sales, so you can put funds into your IRA instead. In addition, you can use sell stops to protect yourself against position drops beyond a certain point. (To learn how these ETFs work, read Bear Funds: A Bullish Stance On Bad Times.)

Some bear market ETFs that look attractive right now are:

  • ProShares Short Dow 30 (AMEX:DOG),
  • ProShares UltraShort QQQ (AMEX:QID),
  • ProShares UltraShort Semiconductor (AMEX:SSG).

Short Dow 30 Advances
The Short Dow 30 reflects the exact inverse movement of the Dow Jones Industrial Average (DIJA) and performs well as stocks suffer steady daily losses. While many ETFs and stocks are in the minus column for the year, as of Friday, the Short Dow 30 was up 39% year-to-date. Additionally, it has a dividend yield of 1.67%. Thus, the Short Dow 30 could be used as a way to make money when the DJIA drops. Also, it could be used as a strategy to balance out a portfolio during uncertain economic times. With the economic news still gloomy, this ETF could continue to be a ray of sunshine for those seeking to make money despite market conditions.

UltraShort QQQ Looks Strong
The UltraShort QQQ maintains solid performance as earnings fall and economic numbers remain negative. As of Friday's close, this ETF is up 87.5% year-to-date. The objective of the UltraShort QQQ is to invert the movement of the Nasdaq 100. This ETF invests all of its assets in stocks, with no bonds, and has a dividend yield of 1.92%. It would not be surprising to see this ETF continue to deliver solid results as market conditions remain weak.

UltraShort Semiconductor Appears Promising
The UltraShort Semiconductor ETF is designed to perform inversely to the Dow Jones U.S. Semiconductor Index. It currently is up 131.75% year-to-date and pays a dividend yield of 1.18%. This bear market ETF invests solely in semiconductor stocks, with no bonds. As the markets and the economy remain weak, semiconductors will continue to fall on the downside. By using this short ETF, money can be made on the downside, but holders of long positions will continue to see losses.

Bottom Line
Bear market ETFs are another way to make money during uncertain economic times. They also can be used as a way to balance out an overall portfolio by offsetting current losses.

To learn more about weathering economic storms, read Adapt to a Bear Market.

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