What they are
An inverse ETF aims to deliver the opposite of an index's daily return. If the S&P 500 falls 1% today, SH aims to rise about 1%; SQQQ aims to rise about 3% when the Nasdaq 100 falls 1%.
Why they lose over time
- Markets rise more often than they fall, so a permanent bet against them loses in most years.
- Daily reset. Like Leveraged ETFs explained, inverse funds suffer Volatility decay, and the effect is worse at -3x.
- Costs near 1% a year.
SQQQ has lost more than 99% of its value since launch, even after reverse splits hid it in the share price.
As a hedge
Inverse funds can protect a portfolio for a few days during a known risk. As a long-term hedge they usually cost more than they save. In a strategy's bear-market branch, an inverse fund is a bet on further decline, not a safe haven. Bonds, cash or Managed futures are more common defensive choices.
See also
- Leveraged ETFs explained How leveraged ETFs like TQQQ and UPRO work, why they reset daily, how volatility decay erodes them, and what their historical drawdowns look like.
- Volatility decay What volatility decay (beta slippage) is, why leveraged ETFs lose value in choppy markets, a worked example, and the formula that estimates the drag.
- Managed futures What managed futures funds like KMLM and DBMF do, how trend following across asset classes works, and why they are used as a diversifier in bad years.
Pages that link here: TQQQ For The Long Term (FTLT), What is an ETF?
Last updated September 30, 2026. Education only, not investment advice.