Ben Carlson at the A Wealth of Common Sense blog wrote a nice article on how stock market crashes and poor performance aren’t necessarily bad, especially if you are young.

The gist of it is that millennials have many years to go until retirement, and a crash or low return environment now gives them an opportunity to buy shares cheaply now, with the expectation that stocks will resume fair returns for the unforeseeable future.

Woe to anyone already close to retirement and fully invested in stocks if there is crash now, but that’s not Ben’s concern in the article.

However, I would like to take exception with the idea that crashes and low current returns are really any good for anybody, even millennials with a lifetime of investing ahead of them.

1. Millennials cover a fairly large age range, but if you are 30, there is a good chance that you (or your parents in your name) have already put together a decent nest egg. If that 30 year old sees his account crash from $50,000 to $30,000 (which happened in 2008) it will take a number of years to work back up $50K. As they say, a 40% drop needs a 67% increase to back to even. Years of earnings spent getting back to even in the hope there isn’t another crash around the corner.
2. Crashes don’t happen in a vacuum. Stock crashes or moderate declines are often accompanied by recessions, which result in layoffs. Many of those junior workers are likely to be the first ones whose jobs are eliminated. (As we say in the accounting business, LIFO, or last in, first out.) Difficult to maintain those 401(k) deposits if you don’t have a job. Well, really, impossible since 401(k)s are job specific.
3. And if our fine young millennial has been able to start a family and scrape enough money for a house? We know what happened to house prices in the last recession. Yes, you never know what the fallout of a crash is going to be, but chances are it’s not going to be good.
4. Lastly, there’s the psychological impact of a crash. The theory is that you benefit by continuing to put money to work at the darkest times. But, in reality, hardly anybody does that. Our Great Depression era grandparents or great grandparents never trusted the markets or banks again. It took many years for regular folk to get back in the markets after 2008 and studies still say participation is at historic lows.

Under the most perfect situation, a crash might help a few people. But, for most everyone, crashes and years of underperformance devastate savings and lives.  Don’t wish them on anyone.

Looking for an ETF to turn small caps into a small bank account? I’ve got it for you: The Direxion Daily Small Cap Bear 3X ETF ($TZA). This ETF is designed to give you daily investment results, before fees and expenses, of 300% of the inverse (or opposite) of the performance of the Russell 2000® Index. That is, three times the daily movement of small cap index that is the basis for $IWM.

The positives for this ETF?

1. it makes outsized moves on a daily basis on small caps, so if you can accurately predict the daily moves, you can make three times what you would make from the IWM.
2. small caps are pretty volatile, and the IWM does move quite a bit each day, the average daily difference from high to low since inception for this ETF is 5.1%!
3. This ETF and its ilk can allow you to skirt margin rules, giving you three times the buying power without borrowing funds from your broker.  Usually, you aren’t going to be able to margin $TZA, not fully.

I call this InTZAnity for a reason, because of the negatives:

1. If you don’t predict this accurately, you can lose big for the same reasons as 1 above.  Remember, if you lose 110% (not out of the question in day on this crazy ETF) you need to make back 12.5% to get back to even.
2. Like all these leveraged ETFs, it loses value over time in conjunction with its companion Bull ETF, $TNA. Look a one year graph of $TZA and $TNA against each other.  Under normal circumstances, both graphs slowly deteriorate over time…  Holding this over extended period, like more than a week, is like swimming against the stream; you may get somewhere, but it’s going to be a lot harder
3. Small caps have been one of the best investments over the long run.  By buying $TZA you are making a bet the small caps will decline.  Why?  Are you that sure you can predict that this is the time the overall market will dive?  If so, can you let me know?

So, you can trade this on a daily basis, try to get it right and racking up substantial commissions or you can stay away from it completely and concentrate on something sensible, or you can try to short it over the long term.  Yes, essentially, short a short. DISCLOSURE:  that is my current position, I am short $TZA, planning for the long haul.