2 Funds to Preserve Wealth During a Market Sell-Off

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Are we setting up for a bearish year despite the high expectations that investors brought into 2014? A large correction is what traders and investors fear after the Dow Jones Industrial Average and S&P 500 Index dropped 3.5 percent and 2.6 percent, respectively, last week. Last week marked the Dow’s worst trading week since November 2011 and the S&P’s biggest weekly drop since June 2012. Caterpillar’s (NYSE:CAT) announcement on Monday that its fourth-quarter profit rose 44 percent helped push the markets back into positive territory, but the market quickly turned south.

That is not good. It shows investors are losing faith in a market that has been pumped up by an overly accommodative Federal Reserve. Market sentiment is worsening, and while this isn’t a 2008 situation, it’s definitely shaping up to be a potential large correction. To take some protective action, traders may want to put on some bearish positions. Those who are bearish could consider selling stock, selling covered calls on their positions, shorting stocks or buying puts. While each of these approaches has its respective benefits and risks, in this article I want to highlight several funds that could provide great short-term returns in the event of a market sell-off. These types of funds performed terribly in 2012 and in 2013, as the market saw up-day after up-day, as well as record low volatility.

Direxion Daily S&P 500 Bear 3x ETF (NYSEARCA:SPXS): The fund can be considered for heavily leveraged bearish exposure to large-cap stocks. The Direxion Daily S&P 500 Bear 3x ETF, formerly the Direxion Daily Large Cap Bear 3X fund, seeks daily investment results before fees and expenses of 300 percent of the inverse of the price performance of the S&P 500 Index. As with other funds, there is no guarantee the fund will meet its stated investment objective, and it is subject to slippage as described above. The fund also has a higher 1.14 percent annual expense ratio.

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