Arright, I know things are much more complicated than I make them, and there is no clear yes or no answer, but here are my thaughts on the subject. I'll be using myself as the example, but this isn't a "what should I do thread".
I'm 21, and have very little money (I guess a lot compared to most 21 year olds). About 8 months ago I began following the stock market, but was hesitant to invest b/c it was reaching new highs every week. Now, this was just a gut feeling, not based on anything.
Anyway, a few weeks ago, I decided to put my money into 2 funds (diversification is not an issue right now IMO). One was a proshares ultrashort
http://www.proshares.com/funds?produ...&fundType= and the other was a mutual fund that does not hedge or short. I would classify both as fairly high risk. Ultra short is (inverse of index)X(2) I believe.
The reason I have 33% of my portfolio in the proshares ETF is b/c I feel it's letting me invest regardless of which way I feel (bullish/bearish). I guess my option (as a not very educated invetsor) was to either try to ride the wave and put some money into a hot stock like RIM or APPL, put it into a random mutual fund and hope the economy continues to rise, or put it into a cd and get like 4% return.
Now let me clear things up, before I get pownded here:
Losing 100% of my portfolio would not really hurt me financially, it makes up less than 10% of my liquid net worth. This is why I have not diversified at all.
I am slowly constructing my portfolio, so as I add investments, my position in each investment will go down as a % of my entire portfolio.
I invested it the way I did, b/c It was money that was not being used, and I felt I needed to make the leap of faith. Losing it would not mean much to me.
Anyway, my ultimate question, (now that you guys may understand the way I am thinking) is:
Are Short and Ultrashort funds a reasonable alternative to not investing (because the market is overvalued, or in a recession)?
If you are feeling bearish, is there an alternative to hedge funds or short ETFs?
Any other ideas/discussion you may have? I am sure there are many things I have overlooked, so hopefully after this thread I may get a clearer sense of what I am dealing with.