The first rule of investing is not to lose any money. With the performance I've had the last three months in my short positions, I would probably have been given the pink slip or at the least be in a major dog house if I'd been managing a mutual fund or hedge fund. After all, investors want results. With a mutual fund, you may experience a quarterly churn of clients for under performance. With a hedge fund, investors want profits every single day. The beauty of being an independent investor is you can be patient. You can also invest in whatever you want to. With mutual funds, you are pigeonholed with restrictions such as being a small cap fund or a value fund or sector specific and when your investing style goes out of favor, you get crushed. The independent investor can be nimble or slow or both depending on your portfolio allocations. Right now I'm in the slow lane with index funds.
If you don't know the gist behind the rationale of investing in index funds and index ETFs, I'll try to give it to you as succinctly as possible. Simply stated, index funds outperform actively managed funds in the long run the majority of the time once you take taxes and expense ratios into consideration. This was proven in Charles Ellis' classic investing primer Winning the Loser's Game in the mid 1970's and restated in John Bogle's The Little Book of Common Sense Investing in 2007. In fact, John Bogle launched the first S&P 500 index fund in 1975 with the Vanguard Group. If you've got money in the market and haven't read either of these books, I strongly suggest you do so. You'll save yourself a lot of time and aggravation by taking the hands off approach if you are not inclined to do your own research. Warren Buffet, Peter Lynch and Jim Cramer all recommend index funds.
The first Exchange Traded Fund was an S&P 500 index fund. Commonly referred to as the Spider, the S&P 500 Standard and Poor's Depository Receipt, or SPDR (SPY) was launched in 1993. This is the new widows and orphans fund. It's liquid, it's diversified, it contains the 500 largest American companies and it mirrors an index that has produced returns of 10% on average over the last century before taxes and expenses. If I didn't know a lot about investing and had a long term time frame, this is where I'd put my money. If you think the market is going to correct and you want to place your bets on the short side of the S&P 500, then there is the ProShares Short S&P 500 (SH) ETF.
For you thrill seekers out there, ProShares also offers leveraged ETFs for the S&P 500 to both the long and short sides. With 200% leverage, there are the ProShares Ultra S&P 500 (SSO) and the ProShares Ultra Short S&P 500 (SDS). They recently introduced 300% leveraged ETFs with ProShares UltraPro S&P 500 (UPRO) and ProShares UltraPro Short S&P 500 (SPXU). If the market is going your way, you can make a lot of money very quickly, but you can lose it just as fast, too. I'm on the short side with a large portion of my portfolio in ProShares Ultra Short S&P 500 (SDS) and on paper, have lose a considerable sum of money. With leveraged funds, invest at your own peril.