Today's Market
by Dr Invest

A time and season for everything under the sun. I am personally avoiding the stock market at this time. I feel convinced that exuberant and enthusiastic investors are pumping money into stocks, believing that the market will only go higher and higher. The result of all this hopeful money flowing into stocks will be a further, but momentary rise in the market. It is only a matter of weeks before investors finally realize that the fundamentals of the market cannot  rise further due to our slowing economy and continued recession in Europe.

Time to Invest

Here is my approach beginning tomorrow. Now is a key time to invest in BONDS. Look at the seasonal chart below:

We note that STOCKS seasonally rise between the end of October and the end of April. The old adage, "sell in May, come back another day" is relevant. SECOND, take a look at BONDS in the seasonal chart. Over the past 35 years, BONDS have had their best performance from May until the first of October.

Bonds are favored to climb in value over the next months and now will be the best time to begin making purchases. As STOCKS weaken, BONDS will strengthen. We will still use a STOP-SELL to protect the money invested in BONDS, but the expectation is that the investment will grow through the summer.

How to Make the Investment in Bonds

I'm gonna start with the amount I want to invest. In this case, I am using a common example of $10,000. Here's how I would begin my investment into a BOND ETF.

 Everyone has a different size portfolio. Also, more sophisticated investors like to use several INVESTMENT METHODS. The example above could represent an entire portfolio (savings) or a partial portfolio.  We divided the $10,000 into three equal parts, categorizing each part as labeled above. Because now is a favorable time to invest into BONDS, we have taken the $3,333 set aside to BUY BONDS and divided it into 3 parts. I will invest only one-third ($1,111) into bonds initially. After the initial investment into BONDS, I will wait ONE MONTH to see if the initial investment has made money. On JUNE 1st, I will invest another $1,111 into BONDS and wait another month to see if the second investment will have produced a profit. Finally, on JULY 1st, I will finally make the last investment into BONDS of $1,111. (Investing cautiously keeps you from making one large investment and then if the market suddenly turns down, having one large loss.)

I will keep ONE-THIRD of my portfolio in CASH to protect my portfolio from catastrophic market crashes. In the Great Depression, people lost their entire savings. By setting aside 1/3 of your savings in cash, you would have something to fall back on if the financial markets completely collapsed.

We will use a similar three tiered method of investing into STOCKS, but only when the financial market is favorable for stocks to grow. Now is not the time to risk your savings in an investment in stocks.

Details in Bond Investing

I use a method called, "The Ivy Portfolio". A key to buying and selling is the 10 month moving average. See: http://blog.pro-folio.net/files/8/9/6/7/6/276554-267698/Pro_Folio_Original.pdf

 Instead of varied bonds, each purchased separately, I am buying a BOND ETF. These are the bonds from the TOTAL US MARKET. This gives you diversification across the U.S. BOND MARKET. You will be BUYING the symbol: BND.

This should be a very stable ETF, but as always, you must be alert. Acording to the rules of the "Ivy Portfolio", you will only buy or sell at the beginning of the month. Selling if the price is below the 10 month Simple Moving Average (SMA) or BUYING if the price is above the 10 month SMA.

Sweetening Your Bond Investment

For simplicity, you can invest in the symbol BND; but if you want to increase your return, you can add the symbol TIP.  This means you will, as my example porfolio of $10,000 above, invest $555 into BND and $555 into TIP initially, then again in JUNE, and finally in JULY, provided the conditions are met according to the "Ivy Portfolio".

As you can see, the 10 month SMA (simple moving average) is below the ETF's price. This means that it is a favorable BUY for MAY. Let's go to WWW.ETFREPLAY.COM to see how this combination might work. Remember we are looking a past returns and they really don't guarantee future gains. When you get on the home page, keep selecting BACKTEST ETF PORTFOLIO.

For ETF 1, enter BND and weighted at 50%; for ETF 2, enter TIP and weighted at 50%. Together BND and TIP would have returned 9.3% over a year. And investment in only BND would have returned only 7.3%, still not a shabby return in a down market.

Conclusion

I now know HOW MUCH I am are going to invest into BND and TIP. I have also indentified that both BND and TIP should return somewhere between 7% and 9% in a year. (Since 8 months remain in this year, expect a little less in returns. Perhaps 5% to 7% ) I have also identified that from May until October is a favorable time to have investments in in BONDS. I will place a STOP-SELL around 5% below the present price of BND and TIP.

Tomorrow, I will explain how to make the purchase using OptionsHouse.

GOLD: 10% to 12% invested in gold is typically suggested by investment advisers. While I think that there is still some growth in the gold market, I would caution that a "Gold Bubble" may well be presenting itself. This raises questions whether a top is in sight and whether gold could return to lower lows. A recent loss in the demand for gold in India occurred because prices have risen too high; this may be an indication of things to come. If you want gold, I suggest the GOLD EFT under the symbol: GLD. Like the other ETFs, buy in tiers and wait to gain some profit, then buy again. Putting a large one-time investment into gold is just a bit too risky for me, so follow a buying plan and then use a STOP-SELL in case the market suddenly turns down.

(note: the above article is for entertainment puroses only and not to be used a financial advice.)