Tuesday, January 31, 2012
The first month of 2012 is history, and many folks are still trying to stick to their New Year’s resolutions (although maybe not as successfully as they wish!). The two on the top of most folks’ lists are pretty much the same year after year: Lose weight and save money.
I’m not an expert on the first, but I do know a little bit about saving and investing. And right now, you can’t pick up a newspaper or turn on the TV without finding some money saving tips.
The problem with most of those tips is that they often require what people might consider “sacrifice”, and therefore, become more difficult to sustain. For instance, I bet you’ve heard at least a hundred times, “Forget Starbucks’ $4 coffees and make your morning pick-me-up at home”; or “take your lunch to work, instead of eating out every day”. There’s nothing wrong with those behavioral changes, but because they are often associated with socializing with your friends, folks have a difficult time sticking to them. And, truthfully, while the savings from them do add up, there are plenty of other—and easier—changes that will put a whole lot more money in your pocket.
I’m going to give you my top ten, and I bet you haven’t even thought of some of them.
Friday, January 27, 2012
What’s all the Hoopla about Bill Gross’ Total Return ETF?
In the bond arena, when you say “Bill Gross”, it’s akin to hearing “Warren Buffett” roll off the tongues of equity investors. Gross, founder and co-chief investment officer of PIMCO, is one of the most successful fixed income money managers around the globe. His flagship mutual fund, PIMCO Total Return Fund (PTTRX), is the world’s largest mutual fund, with a mandate to invest 65% or more of its assets in fixed income.
Recently, Gross made news with the announcement that on March 1, 2012, he is launching an almost-cloned version of his mutual fund with his total return exchange-traded fund (TRXT). It won’t be exactly the same as the mutual fund, because the ETF will not invest in derivative instruments.
I think the ETF is a good idea for a few reasons:
Tuesday, January 24, 2012
In my recent article 5 Steps to Protect Your Portfolio | InvestorPlace, the final step I discussed was utilizing put options as insurance that any unrealized gains you have don’t turn into losses.
Most investors have heard of options, but often think they are just for “rich” folks or hedge-fund managers, who employ them for speculative purposes. Certainly, sophisticated investors regularly use them as leverage to maximize their portfolio gains. But they also like to use options such as puts to nail down their gains and to mitigate losses should their stocks’ prices head in the wrong direction.
In essence, put options provide protection by betting that the underlying stock will decline. They give you the right (not the obligation) to sell the stock at a certain price at a specific future time.
There are three scenarios in which a put can help you protect your portfolio:
Friday, January 20, 2012
Adding dividend-paying stocks to your portfolio helps you hedge against inflation and can also boost your returns in a down market cycle. This is a crucial key to a well-balanced portfolio—the fourth step I cited in my article last week, 5 Steps to Protect Your Portfolio | InvestorPlace.
Many newbie investors and younger folks often neglect this step, as they are focused on gleaning the maximum returns from their portfolios, which generally means buying lots of high-growth stocks.
However, what goes up also comes down, and when the market cycle turns bearish—or even sideways—owning a few dividend stocks can turn a losing portfolio into a winning one.
I can’t really blame investors for thinking that stocks that pay dividends are old, stodgy companies, because that’s the way it used to be. But in today’s world, more and more companies are paying dividends to entice and reward their investors—even tech companies that wouldn’t have been caught dead paying dividends ten years ago!
Wednesday, January 18, 2012
In my recent article 5 Steps to Protect Your Portfolio | InvestorPlace, the third step I discussed was diversifying your investments to reduce the volatility and risk of your portfolio.
You can think of diversification simply as this, “Don’t put all of your eggs in one basket”. Instead, create a portfolio that has a variety of non-correlating assets, essentially, assets whose prices move in opposite directions. That way, if one stock or sector or style of investing underperforms, you have a fighting chance that some of your other assets will rise, ultimately reducing your losses.
Many investors pay no attention to diversification. Instead, they find a sector or industry they like and invest their entire portfolios in one place. That’s great if all of those stocks just keep going up. But the laws of nature—and the stock market—never work that way for long. Consequently, those investors eventually lose their shirts because even the very best sectors don’t rule the market for ever.
The bottom line is this: By adequately diversifying your portfolio, you reduce the risk that all of your assets will decrease in value simultaneously.
Thursday, January 12, 2012
In my recent article 5 Steps to Protect Your Portfolio | InvestorPlace, the second step I talked about was the importance of setting stop-loss orders.
A stop-loss is simply an order—either formally placed with your broker—or a ‘mental’ reminder—to sell your stock when it reaches a certain price threshold.
It’s painless to place when you buy your stock through your broker’s web site, or, if you prefer, you can just set an alert on whatever portfolio tracking web site you use, so that if the stock reaches that price, you can make an instant decision on whether to cut it loose or keep it. That’s what I call a ‘mental’ stop.
I’m a big believer in stop-losses for one simple reason: If your stock doesn’t go the way you think it will (up in most cases!)—for whatever reason—this little tool will limit your potential losses.
Sure, it’s true that if you are diligent in the use of stop-loss orders, you can be stopped out of what could turn out to be a very good stock. But, you know what? You can always get back in, and more importantly—stop-losses can also save your bacon if market or industry forces cause your stock to take a nose-dive.
Tuesday, January 10, 2012
In my recent article 5 Steps to Protect Your Portfolio | InvestorPlace, I listed Setting Price Targets as the #1 step to help protect your portfolio, by instilling a “sell” discipline that will help you realize actual, not just paper, profits.
When I speak at Money Shows across the country, I get asked very frequently about how I set my target prices. If it’s not the most common question I get, it’s certainly up there in the top five.
First of all, I can’t emphasize too strongly that it is essential to set a target at the time you buy a stock. If you don’t, then how the heck do you know when your stock has appreciated enough to sell it?
I always ask my workshop attendees how many set price targets on their stocks, and I never see more than two or three hands go up. That’s a shame, but I think it’s because folks just don’t know how to set targets, rather than them not wanting to. So let me tell you how I do it, but keep in mind that, like all investing, it is not black and white. It’s a combination of science, art and experience. But most of all, it’s easy! No complicated math here—just a few assumptions.
Let’s walk through an example step-by-step. For this example’s sake, we’ll set your holding period at three years, max.
Sunday, January 8, 2012
If you did nothing but look at the Dow Jones Industrial Average at year-end 2010 (11,577), compared to the end of 2011 (12,217), you might say that investors made little progress.
But you would be wrong! Just look at the chart below and you can see that the year-end comparisons are not reflective of the market’s actual behavior. Instead, the volatility of the marketplace offered some great opportunities to investors who were prepared to take advantage to buy low and sell high!
Thursday, January 5, 2012
In my last couple of articles, I discussed the growth of the ETF industry, ETFs: Love 'Em or Leave 'Em? | InvestorPlace, how to determine which are the best ETFs to invest in, ETFs: Separating the Good from the Bad | InvestorPlace.
Now, it’s time to figure out which ETFs look promising for your 2012 investment dollars. But first, let’s take a look back at the ETF marketplace in 2011.
According to Morningstar.com, here are the top 10 worst-performing ETFs for the past year:
1-yr. Return (%)
ProShares UltraShort Silver
Direxion Daily India Bull 3x Shares
PowerShares DB 3x Sht 25
Market Vectors Solar Energy
iPath Global Carbon
C-Tracks Citi Volatility Index
Direxion Daily China Bull 3x
Direxion Daily Emrg Mkts Bull 3x
Global X Uranium
In my last article, ETFs: Love 'Em or Leave 'Em? | InvestorPlace, I discussed exchange-traded funds (ETFs), their pros and cons, and the most important characteristics that investors need to know before choosing from the 1,400+ ETFs now on the market.
Many investors frequently make the mistake of chasing returns and blindly select ETFs that have the highest short-term gains. That’s a big mistake!
Unfortunately, the ETF world has caught up with the equity marketplace, with investors abandoning a long-term outlook, and instead jumping on the next “hot” idea. This has led to the proliferation of a variety of ETFs, many that are thirstily sucking up investors’ hard-earned money. But on the bright side, innovation in the ETF space has also meant that investors now have a broad choice of different ETFs to select from. The key is—as with any investment—separating the good from the bad.
Let’s first take a look at the different types of ETFs available to you today, beginning with those that are weighted by alternative parameters: