Submitted by: Jhon Basta
The answer is to invest for economic events using Exchange Traded Funds
(ETF’ s).What do i mean by economic events?Examples would be the Dow
Jones Industrial Average going up or down, interest rates rising or falling,the oil
drilling boom in North Dakota and Texas,the US economy growing or shrinking,
US trillion dollar deficits ,etc,etc.These event and many more are easy to
ecognize.In 2014 the best investment return was on falling prices,an event
and trend that was easy to spot.What are these Exchange Traded Funds?Basically
it is the same as buying a mutual fund share. ETF’s are traded daily on the majo
exchanges and have the same liquidity as individual stocks.Exchange Traded
Funds made their debut around 1990 and held numerous individual stocks in
different industry segments such as energy and healthcare.By 2005 there were
enough Exchange Traded Funds available of different types to make investing fo
economic events feasible.Let’s give an Example, Suppose your brief review of
mortgage rates concludes that they will go up significant.Your next step would
e to find an ETF that increased in value when interest rates rise.How?You could
“Google” “ETF for raising interest rates”.The result would be listing and
information about ETF’s but also information of what specific ETF’s increase in
value as interest rates rise.Next step.purchase the ETF shares.Another simple
example would be gold.Assume your review of the situation determined that the
price of gold would go down.Next step”Google” ” ETF for falling gold price”.
The result would be a description of various ETF’s that go up in value as the price
of gold drops.
AS you can see , this type of investing in economic events eliminates trying to
analyze which mutual fund or individual stock to purchase.No analysis of the
fundamentals, or technical analysis of price movements and chart patterns are
The only think missing now is risk management for the price movement of the
individual Exchange Traded Fund invested in.The solution is to follow the risk
management rules that i recommended and use:
The unbreakable rules that guarantee success with investing:
1)Review the price/value of your investment(s)twice a month.Look up the
price of the stock,mutual fund,ETF,etc.This rules allows you to see and
apply the rules of risk management,if necessary.
2)”Don’t lose money”.This is the cardinal rule espoused by world renowned
investor Warren Buffet,among others.While the rules is obvious,
people generally forget two things:
a) When you lose your principle, you are no longer able to invest.
) If you have 50% loss of principal , it takes a 100% gain to break even.
3)Control and minimize investment risk.You minimize investment risk by
applying the 10% trailing stop loss rule -always.When the investment
price/value drops 10% from the high point, sell no metter what.
Here is how the rule works.You bye Exchange Traded Fund (ETF) at $100 pe
share today. Two weeks from today it has declined to %89.50 per share.You sell
immediately because 10% of $100 is $10 and the ETF has declined $10.50.
On an ongoing basis the stop trails the price movement. Here is how it works:
Two manth ago you bought an Exchange Traded Fund for $100 per share. During
that two month’ time the share price went to $130. Today the price is $116.Sell
immediately.10% of $130 is $13, so when the ETF share went below $117 (10%
of $130 is $13) it is the signal to sell.As you can see, you now have locked in a
very acceptable profit.When you review your investment(s) twice a month,
sometimes no action is necessary.At other time you take a profit or prevent a loss.
That’s it.Simple and easy for the active investor as well as those non-technical
people who don’t have the desire to be active investors.
About the Author: Jhon Basta is the author of five financial
books including “Successful Investing for
John Basta’s brief resume follows:
* Has practiced as a Certified Public Accountant (CPA) greater than 20 years
*Has been the Chief Financial Officer (CFO) at both small & mid-size companies
*Is a Real Estate Investor and has 35+ years of experience
*Is a Business Consultant
*Is a Precious Metals and Exchange Traded Fund Investor
*Is a Financial Author and Lecturer
*Is a licensed Real Estate Agent
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