Tuesday, June 29, 2010
If investors have learned anything since the beginning of 2008, it's that buy and hold doesn't seem to work anymore. And even if you think a buy and hold strategy isn't dead, it's just too hard for most people to handle. With the extreme volatility in the stock market today, as noted especially by the markets this year, the average investor must take a new approach. Let's look at the performance of a popular index, the S&P 500. Year to date, if you had money invested in funds that track the S&P 500, such as the SPY, you would be down 3.51%. Over the past 3 years, you would be down a whopping 28.52%. However, in the past year, due mainly to the incredible returns of 2009, you would be up 16%! Wow, that is some roller coaster ride. So what's a better option? Instead of buy and hold, more people are looking at taking a tactical approach to investing. This means being more hands on, making changes to your portfolio, when appropriate, to react to the ever changing conditions of the stock and bond markets. While taking a more active approach to managing your portfolio sounds like more work, and it is, it can help you keep more of your hard earned money in your account. After all, the point of investing is to make money, not lose money. And making up for big losses is much harder than making up for small ones. While the buy and hold index investor is down 3.51% year to date, the active, tactical investor could be up over 4%. That's a difference of over 7.5%! Over the past 3 years, you might be up over 10% instead of being down over 25%. Now you're talking about a 35% difference. So do your homework and talk to your financial advisor about taking a tactical approach to investing, you'll find the ride a little smoother, with less bumps along the way!
Wednesday, June 23, 2010
One of the biggest asset classes in the news lately has got to be gold. As the Euro continues to weaken, gold has surged in price over the last several weeks to all time highs in price. Last Friday's close had gold priced at a never before seen value of $1258/oz. Year to date, gold is up over 13% and has gained over 87% in value in the past 3 years. So is it too late to buy gold? Some pundits expect gold to continue to climb to $1500, and some even predict $2000 in the not to distant future. Of course, like anything else, it all depends on your goals and objectives. Are you in it for the long haul or just for a short term play? If the US Dollar strengthens from actions from the Fed or Treasury Dept. moves, then the price of gold may come down a bit. But as long as interest rates stay low and the stock market continues to be extremely volatile, these predictions could play out. Just remember, had you bought gold in the early 80's at the going price of $800 per oz., you would have watched it go down below $300 before it came back up to today's values. Also, adjusted for inflation, the price of gold would have to hit $2400/oz. to really be at an all time high in terms of purchasing power. If you still want to get in on a piece of the action, the easiest way to play is by buying the Gold Trust ETF, "GLD" or the Market Vectors Gold Miners ETF, "GDX". You can hold it in your brokerage account and not worry about the cost of storage fees and safety issues that gold bars and coins entail. Think gold is too expensive? Try silver. It usually follows the path of gold, and is a fraction of the cost. The Silver Trust ETF, "SLV" can be had for $18.42/share at yesterday's close, and silver has actually outperformed gold the past 12 months. It's up over 35%! Happy mining!
Tuesday, June 15, 2010
When people say that you can't make money in the stock market, it usually means that they lost money in the stock market themselves or they think the stock market is too risky for them to be in. There is a big difference between investing in the stock market through a mutual fund or ETF and buying an individual stock. Let's take a look at a few examples. If you bought the popular ETF (exchange traded fund), S&P 500 "SPY", you would be up a little over 15% from one year ago. But in the past 3 months you would be down about 6.5%. However, if you bought shares of Apple stock, "AAPL", you would be up over 85% from a year ago, and up nearly 13.5% in just the past 3 months. By comparison, AT&T stock, "T", is up only 0.64% in the past 12 months, and is down 2.82% in the past 3 months. That doesn't mean you didn't make money with AT&T however, because AT&T pays a 6.67% dividend. Apple does not pay dividends. So for people looking for income in a world where bank CD's pays 1-2% interest currently, AT&T might be a nice place to make some quarterly income. In fact many savvy seniors have shares of this stock just for that reason. But if you're looking for growth, Apple may be a better bet for you. When looking at stocks, you generally need to have a longer time horizon to overcome market volatility and short term price swings. But if you stick with it, buy more shares when the markets correct, and have realistic expectations, you can come out ahead of CD's by a long shot. Don't listen to your neighbor, do your homework and talk to people who can help you with your investments. It's your money!
Friday, June 11, 2010
After last week's stock sell off, how are investors doing? Is it time to get out of the market again? Time to throw more money in? The recent stock market volatility over the past couple of months have made most investors very nervous about being in the markets. Problems in Europe, Korea, and the Gulf of Mexico has forced many people to the sidelines. Mutual Fund investors participate in the market indirectly depending on what kind of a fund they own. Stock funds are professionally managed portfolios run by investment teams that try to beat a stock market benchmark like the S&P 500 index. An actively managed fund will try to add value to an investor's portfolio by successfully outperforming the indexes with the right mix of buys and sells. Some do have a higher turnover rate than others which can account for the differences in expense ratios. A long lasting debate is whether actively managed funds can beat the indexes over time, to make up for their higher costs, especially for funds that charge sales loads or commissions when sold through brokers. Index fund advocates say it can't be done, but active management proponents beg to differ. What is your preference? Do you own mutual funds? If so, which ones and why?
Friday, June 4, 2010
Back in the bull market of the late 1990's, many people saw the prices of their stock go up almost exponentially to heights never imagined. Rather than sell at the highs, some thought that stocks would continue to advance. Those that did not see the internet bubble coming and sell out in time, saw their stock position tumble back to earth. In effect, they lost all or most of their gains because they did not sell in time. What could they have done differently? Lock in gains! Let's say you bought shares of stock ABC at $10/share and watched it climb to $20. Rather than hope that it continues to climb higher, you can put in a stop-loss order to sell your shares if the prices drops below $15/share. If the stock climbs to $25, then change your stop-loss order to $20. But if the stock falls from $20 to $15, your sell order will kick in and you will sell out around $15 and book a 50% profit. If you still like the stock, buy it again later. But don't be in a position where you kick yourself for not selling at $20 or $15, when the stock drops down to $8. Don't be greedy! When you buy a stock, have a price in mind that you would like to get out at, and stick with it. You can also use stop-loss orders to limit your losses when you first buy into a new stock position. If you book profits and limit your losses, you will make money in the long run. You can always make adjustments to your plan, but you need to have a plan in the first place.