I’d like to play the market’s downturns, but I don’t have the confidence to short stocks. It seems like an expensive and complicated process. Is there some other way I can profit from declines? —J. Davis, Los Angeles, Calif.

As Peter Staas notes on p.11, shorting stocks isn’t a complicated process, though it does require a margin account. Still, if that’s not a strategy that you’re comfortable pursuing, there are other ways to play a down market.

One option is to use inverse exchange-traded funds (ETF) to essentially short an index. These ETFs use futures, swaps and other derivatives to produce the opposite, or “inverse” return of an index over a defined period of time. One of the most popular products of this type is ProShares Short S&P 500 (NYSE: SH), which is designed to return the inverse of the daily performance of the S&P 500. Other popular inverse funds include ProShares Short QQQ (NYSE: PSQ), which tracks the NASDAQ Composite, and ProShares Dow 30 (NYSE: DOG), which tracks the Dow Jones Industrial Average. “Daily” is the key term here; these ETFs’ performances exhibit an almost perfect negative correlation with their corresponding index over any single trading day, but diverge over a longer period of time. That’s a result of the fees deducted by the fund’s sponsor, as well as the costs associated with resetting the portfolio on a daily basis.

We don’t recommend inverse funds for most investors; they’re really only useful over a single trading day. But if you employ a tactical short-term strategy, they might meet your needs.

Another option more appropriate for long-term investors is a product that tracks the Chicago Board Options Exchange Volatility Index (VIX). Created in 2004, the VIX, also known as the ”fear index,” tracks S&P 500 index options and is used as a gauge of the S&P 500’s expected volatility over the subsequent 30-day period. When the S&P 500 declines, the value of the VIX index typically rises, producing a negative correlation with equity prices. That makes VIX index futures an extremely useful hedging instrument for investors.

Over the past three years, volatility funds have become extremely popular with individual investors, prompting several ETF sponsors to launch competing VIX-linked products. Our favorite of these is S&P 500 VIX Short-Term Futures ETN (NYSE: VXX).

This exchange-traded note (ETN) tracks the performance of a basket of short-term VIX futures with an average maturity of one month. As a result, the ETN has a negative correlation to the S&P 500 and performs well as the S&P 500 declines. By the same token, when markets are flat, the ETN’s performance also remains flat and it actually loses value when the S&P 500 is on the ascendency.

The ETN’s 0.89 percent expense ratio is fairly high, but the fund features little tax exposure and investors only pay capital gains when they sell their position in the fund.

The stocks for many mining companies have fallen significantly. Have we seen the end of the bull market for metals?— James Burke, Ypsilanti, Mich.

Investing in metals and mining stocks can be punishing for investors who make the wrong bet. Every commodity bull market must come to an end, and share prices for even the strongest miners have plunged since last spring, leading many to question whether we’re facing a downturn in the sector similar to 2008.

But it’s important to remember that the steep resource slide of 2008 was caused in large part by the US banking crisis and resulting fears that demand would slide to Depression-like levels. But metals have been on a tear since 2009, largely driven by demand from emerging markets in Asia. And this structural trend will be in place for years to come.

China, for example, consumes more than 40 percent of the world’s copper and was the fastest-growing user of oil-related products in 2010. India is the third-largest user of coal and boasts a rapidly growing market for automobiles. These economies require a laundry list of resources to keep their economic engines humming, and rising domestic demand will only help support this trend.

Mining stocks are essentially leveraged plays on metals. Higher prices boost earnings by raising the selling price of output, and by enabling companies to increase production. This means that mining stocks can experience wide swings in value when the price of metals rises or falls. When the prices for their products decline, even modestly, mining stocks crash. But the gains are magnified when metals and minerals prices begin to rise. So long as Asian demand remains intact, prices will eventually rebound.

But not all mining companies are created equal. Though profits abound in “penny” mining stocks, the companies that can reliably boost production over time will fare the best in any environment. Bigger is always better when it comes to the long-term resource game.

As our colleagues at the Global Investment Strategist have noted, shares of Anglo-Australian miner Rio Tinto (NYSE: RIO) have toppled from their 2008 high. The stock may not be in the bargain bin, but it’s starting to look cheap once again. The company’s first-half results disappointed some investors, but Rio’s cash flow almost doubled to USD18 billion amid a 35 percent year-over-year increase in profits. The company is putting this cash to use with a USD7 billion stock repurchase program and a USD6 billion capital expenditure plan in 2011. The company also plans to boost annual iron ore output to 333 million tonnes in Australia and Africa by 2015. Unlike the numerous mining companies that have built their house upon a foundation of dwindling reserves and stagnant output, this miner is going further and digging deeper to boost output. Among mining giants, it features some of the greatest exposure to China and the least exposure to Europe, which bodes well for future growth.