Today's Market
by Dr Invest


One of the challenges in making investments is the perception of performance. Before 2008's sharp drop, investment advisers were suggesting a withdrawal of 8% before affecting your core investment; today, it has been revised to 4% withdrawal per year.

The market has changed and what you can expect over the next ten years has changed, so marginal growth is the "New Norm". If you have been following this blog, on May 2nd, I invested into TIP and BND. Read my blog starting May 2nd to learn how to position yourself in BOND FUNDS.

As we learned from seasonal charts, stocks begin to decline in value in May, while bonds begin to increase in value. Now is a favorable time to invest in bond ETFs. Buy going to ETFreplay.com, you can BACKTEST your selection of ETFs. A combination of TIP and BND would have returned 9.8% over the past year, and when you divide that by 12 months, your average performance is around .78% per month.

When you are trading stocks, 3%, 5%, even a 12%  return is not unheard of in two or three weeks. Bond EFTs don't PERFORM that way. While the increase in the value of BOND EFTs grow slower, the investment is put at less of a risk. Still, any return over 8% is a good investment.

BOND ETFs DO GO DOWN

In 2008, when the market crashed so violently, TIP and BND also crashed. When the market collapses, and believe me, everything crashes. Oil, bonds, stocks, commodities, treasuries will all fall. In economics, it is called "value destruction". See, people are so greedy that they will "overvalue" THINGS. It is natural, that once THINGS are overvalued, the value falls until the THINGS are undervalued. This is how the market works.

Since ANYTHING can go down in value, you want to get out of the market before they do. An orderly and slow decline can be good for BOND prices, but a sudden panic driven downturn can result in potential losses.

I am watching my TIP and BND investment and after 9 days, my return is .21%. I have decided that the most I am willing to lose is 5%, so my STOP-SELL is set at 5% below the purchase price. You will remember that I set aside 1/3 of my portfolio for BOND EFTs. I then divided that 1/3 into thirds, investing 1/3 in MAY, another 1/3 in JUNE, and another 1/3 in JULY. Each time I make another purchase of TIP and BND, I will readjust my STOP-SELL. At the end of October, I will review the gain of TIP and BND, moving my STOP-SELL within 3% of the closing price. TIP and BND had solid gains through out 2011 and as long as stocks are volatile, the flow of money will continue into BOND ETF FUNDS.

REMEMBER RULE ONE

Rule one of investment is: Don't lose money. Rule two is: Remember rule one! A friend explained: The best way to get a MILLION DOLLARS from trading stocks, is to start out with TWO MILLION DOLLARS.

Here is how I confidently lost money. I believed the advertisements that in weeks, I would turn $1,000 into $10,000, then the $10,000 within two years would grow to $1,000,000.00. Go ahead and ask JP Morgan how they could lose 2 billion dollars. Even the professionals have problems. Every time I lost money, I started by being greedy, attempting to make "quick money".

A lawyer friend told me of a couple in a little town called Fredricksburg, Texas. Through out their lifetime, they invested only in EXXON if they had some extra money. The total value of the portfolio from small investments... three million dollars left in their estate. They never diversified, yet old EXXON took them to the top, doubling their portfolio from time to time.

When you attempt sophisticated trading stragegies, there more cogs and gears that can break. A trader at JPMorgan was using sophisticated trading methods, using derivatives while hedging a large position. More will come out later, but making your own investments SIMPLE will reduce the risk to your portfolio and keep you following RULE ONE.

(note: the above article is for entertainment purposes only and not to be used as investment advice.)