Subscribe to Money Morning get daily headlines subscribe now! Money Morning Private Briefing today's private briefing Access Your Profit Alerts

How to Invest in a Market Correction

There are events unfolding right now that show you need to know how to invest in a market correction…

First, this bull market – the most unloved bull market in history, according to Money Morning Chief Investment Strategist Keith Fitz-Gerald – has continued for 54 months now. That's a full 11 months longer than the average bull market run since 1953.

Second, the forces keeping this bull market going are almost completely divorced from any economic reality.

Unemployment and underemployment – the sheer number of Americans who've flat out given up looking for work – remains appallingly high, at 14%. Economic growth, limping in at under 2% per year, is anemic.

Yet, the markets have surged for more than four and a half years… hitting as high as 15,628… shattering all records as they go.

Now market crash indicators like the Hindenburg Omen – the only "crash talk" worth trading, as Fitz-Gerald told us last week – are alerting investors to prepare now. And the rising yield on 10-year Treasuries could trigger a selloff.

But a market correction, crash, or downturn is nothing to fear if you know how to invest for that scenario. A good investor is prepared to stay in – and make money in – any market.

In fact, the only sure way not to make money is to be out of the market.

So, here's where to start.

How to Invest When Markets Fall

Inverse exchange-traded funds (ETFs) can be a powerful hedge against a downturn or crash. Even more than a hedge, they can be a tool to make money while everyone else is losing theirs.

Bearish investors nowadays have a truly staggering array of short plays to make using ETFs. If you can think of it, there's an inverse ETF to short it: commodities, market cap ranges, precious metals, indexes, entire sectors, whole national economies, currencies – nearly anything.

Inverse ETFs can be a bit more expensive than "traditional" ETFs, but they allow investors easy access to the short game, without the hassle and expense of maintaining a margin account.

If you're expecting any of the major indexes to go through a correction, you would naturally target an inverse ETF. You can always use an ETF that returns a one-to-one inverse of the daily return of whatever you fancy:

Join the conversation. Click here to jump to comments…

Leave a Reply

Your email address will not be published. Required fields are marked *

Some HTML is OK