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Are Bear Market Funds For You

- Alan Lavine and Gail Liberman

Bear market funds do well when the stock market head south. So if you plan to own a bear market fund, you must use a system that tells you when stock prices could go lower.

Do you have one?

Typically, investors use moving averages and trend following indicators to make changes in their holdings. Or, they may subscribe to a mutual fund market timing newsletter. Some hire money managers to move between cash, bonds and stocks.

Here is run down on some bear market funds, according to Maxfunds.com.

  • ProFunds Bear fund (BRPIX), for example, uses short sales as well as stock index futures and options.

  • Prudent Bear (BEARX) shorts individual stocks as well as market indexes, and invests in bonds from time to time.

  • The Potomac Small Cap/Short (POSSX) tries to produce returns that inversely correspond to the returns of the Russell 2000 Index.

  • Rydex Arktos Fund (RYAIX) tries to match the inverse performance of the NASDAQ 100 Index.

Unless you're skill at market timing, stay away from bear market funds. If you want to hedge your stock fund investments, consider keeping 60 percent in stocks and 40 percent in bonds. Historically, this mix has grown at an annual rate of 8 percent over the last seven decades. It's half as risky as a 100 percent take in stocks.


Alan Lavine and Gail Liberman are husband and wife columnist and authors of The Complete Idiot's Guide To Making Money With Mutual Funds, (Alpha Books). Al and Gail's new book is Rags to Retirement, (Alpha Books).

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