Focusing On The Future

Longer-term examples aren't available for ETFs. But plenty of mutual funds do much the same in terms of attempting to short or leverage indexes. Most any way you slice and dice it, analyzing those tendencies show similar trends.

Take the ProFunds UltraShort NASDAQ-100 Fund (USPIX). In the past 10 years, according to Morningstar data, it had a total return of -19.62% through last week. In that same decade, the PowerShares QQQ (Nasdaq: QQQQ) was down about 5%.

As long as markets keep moving up over time, bypassing leverage and inverse ETFs in favor of traditional long-only index funds makes sense. The argument against taking a buy-and-hold approach and relying on asset allocation for most of your gains does hold water if stocks don't increase in value by the time you need the money.

Then again, if markets don't make any gains over longer periods of time, the prospect of investing in stock markets probably won't be very attractive to a lot of people. The lone exception might be traders and sophisticated index-based institutional technicians.

As new ETFs come out offering different approaches, it's going to become more important than ever for long-term-minded investors to stay the course. That means putting today's returns into some sort of long-range perspective.

That's going to become harder and harder to do, as all the razzle-dazzle goes to the new funds.

As the new ETFs have been rolling out the industry's proverbial assembly line, we've been taking extra pains to point out each one's strengths and weaknesses. Inverse and leverage providers themselves are emphasizing that their products designed for traders—not investors—especially those with longer horizons.

The complaint that these newfangled funds are nothing more than the latest craze—just like single-country ETFs—might be right. But it's not fair to label them as a bad idea. More options are better for everyone, although that might not be true in your specific case. Instead of trying to ban leverage, as entertainers and riddlers like Jim Cramer suggest, you can use them to define your perspective even more.

It all comes down to knowing what you're buying.

Last week, I got really sick. It turned out to be a drink from our local grocery store. Under the fine print on the bottle, I found the reason why—it had a very small reference to an ingredient that doesn't sit well with my system.

So should I have blamed the distributor? Well, I tried. But my wife pointed out that not reading the labels of something before buying it—when I know what can hurt me - is my own fault.

Murray Coleman is managing editor of IndexUniverse.com. He welcomes comments and suggestions for future columns at: This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

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