| > | | | | experts say you can’t successfully time the |
| First of all, I want to give everyone the disclaimer | | | | market. I believe this is true when using the strictest |
| that I am not a registered financial advisor and I | | | | definition of the term, market timing. |
| don’t play one on TV. Therefore, I cannot | | | | However, I have been able to trade successfully with |
| legally provide financial advice and I will not do so. | | | | the short-term momentum already established by the |
| This is for informational purposes only and I’m | | | | market. Why no-load market index funds instead of |
| not recommending any of my personal investment | | | | individual stocks or Exchange Traded Funds (ETFs) |
| strategies to anyone else. Now, with that being said, | | | | that mirror various market indexes? Because no-load |
| I will outline some techniques I use for my personal | | | | market index funds allow leveraging and short selling |
| investment strategy, without going into a whole lot | | | | without the need for a margin account. Also, some |
| of specifics. I generally go against the conventional | | | | of these funds allow twice-daily trading (which is |
| investment wisdom that you are accustomed to | | | | important for exiting early on bad days). In addition, |
| hearing, although I do use both a conservative and a | | | | the fund company I use doesn’t charge |
| not-so-conservative strategy. | | | | redemption fees for actively trading its funds. Most |
| Most financial advisors put a great deal of emphasis | | | | fund companies, even those that specialize in no-load |
| on diversification. While this is probably appropriate | | | | funds, charge these fees. |
| for most people, I personally don’t buy it. The | | | | Like I said at the beginning, I’m not going into |
| idea is that it limits risk. While it does indeed limit risk, | | | | great detail, especially about my more aggressive |
| for me it also limits my upside potential way too | | | | strategy. However, I should define some terms so all |
| much. Therefore, I basically disregard the whole | | | | of this will make more sense to those who are |
| concept. Most advisors will encourage investing for | | | | novices in the world of investments. |
| the long term. This strategy is generally successful in | | | | What is leveraging? Leveraging, in this context, is the |
| building wealth, but unfortunately for me, it | | | | ability to buy shares of a stock or mutual fund and |
| wouldn’t until after I’m old or dead. I | | | | realize a multiple of its gain or loss during the time |
| invest for the short and intermediate terms. | | | | you hold it. For example, if you buy a fund leveraged |
| I also do not buy or trade individual stocks. Instead, I | | | | at 2 times a given stock index and that fund goes up |
| buy and trade no-load mutual funds, including index | | | | 20%, you realize a 40% gain. However, if it goes |
| funds. Even with the use of a deep-discount broker, | | | | down 20%, you incur a 40% loss. With individual |
| commissions from trading individual stocks will add up | | | | stocks or ETFs, you need a margin account to do |
| and cut into my profits. True no-load mutual funds | | | | this. With a margin account, your broker is loaning |
| don’t cost me anything to buy or sell. Besides, | | | | you money on margin at a rather high rate of |
| owning shares in a mutual fund is like owning shares | | | | interest to cover the leveraged (or extra) amount. |
| of a lot of different stocks at one time without | | | | Obviously, this could be very risky and costly. |
| having to actually buy any of those stocks. Instead | | | | However, there are some funds that have this |
| of buying individual stocks, I am buying classes or | | | | leveraging built in at no cost to you. These funds |
| groups of stocks. I also don’t have to worry | | | | automatically give you one-and-a-half or two times |
| about which stocks to buy or sell, as that job is | | | | the gain or loss of a given stock index. |
| being taken care of by the fund managers. | | | | What is short selling? Short selling is when you sell a |
| Now, let’s talk about some guidelines I use | | | | stock (that you don’t already own) |
| specifically for my conservative strategy. I only buy | | | | immediately at its current market price while agreeing |
| funds that have earned a "Five-Star" rating from | | | | to buy it at whatever the market price will be at a |
| Morningstar ( They must also have a Morningstar risk | | | | fixed point in the near future. In other words, you |
| rating of "low", "below average", or "average." In | | | | are betting that the stock will be going down, so you |
| addition, they must have a Morningstar return rating | | | | can buy it for less than you sold it for. Have you |
| of "above average" or "high." Also, they must be | | | | ever heard anyone say don’t sell me |
| long-term winners, i.e., near the top of their | | | | short? Well, this is where that term came from. |
| categories in five-year and/or ten-year performance. | | | | Selling someone short is tantamount to treating them |
| I also require them to be "Lipper Leaders", as | | | | like a bad stock that you believe is going down. Yes, |
| deemed by Lipper ( in the categories of "Returns", | | | | it’s backwards of the normal process of |
| "Capital Preservation", and "Consistency." | | | | buying and selling stocks. As with leveraging, you |
| In my mind, consistency is just as important as high | | | | need a margin account to do this for individual stocks |
| overall return and capital preservation. An inconsistent | | | | or ETFs. Your broker loans you money on |
| or volatile fund can cause problems for short and | | | | margin (actually buying the stock temporarily), |
| intermediate term investors, even if its longer term | | | | so you can sell a stock that you don’t own |
| performance is excellent. Here’s the problem: | | | | yet. |
| Let’s say a fund that I invested in went down | | | | Once again, however, the funds I use have this short |
| 50% in the first year I owned it. It would have to go | | | | selling mechanism already built in to them at no cost |
| up a whopping 100% the next year for me to break | | | | to you. For example, you can buy a fund that gives |
| even after two years. However, let’s say it | | | | you the inverse performance of the Nasdaq-100 |
| went down 25% after the first year. In that case, | | | | Index. When that index goes up 10%, the fund goes |
| the fund would only have to go up 33% in the | | | | down 10%; conversely, when that index goes down |
| second year for me to break even. A 20% drop in | | | | 10%, the fund goes up 10%. There are even funds |
| the first year would need only a 25% increase in the | | | | with leveraging and short selling built in to them, at no |
| second year to break even; a 15% drop would need | | | | cost to you! For example, there is an available fund |
| only an 18% increase; a 10% drop would require only | | | | that goes up 20% when the Nasdaq-100 Index goes |
| an 11% increase; and so on. Therefore, I stick with | | | | down 10%. Of course, that same fund goes down |
| funds that have never gone down more than | | | | 20% when then the Nasdaq-100 Index goes up 10%. |
| 10-20% in any one year. I prefer funds that have | | | | As you can probably imagine, these funds can be |
| never had a losing year, but those are very hard to | | | | powerful tools for profit-making for those who know |
| find. | | | | how to use them, but can be highly dangerous for |
| What about my more aggressive strategy? This is | | | | those who do not. |
| the one that I’m using more and more often | | | | For more information about any or all of these |
| and is becoming more profitable, although I probably | | | | concepts and to find out what kind of investment is |
| couldn’t quit my job and make a living off of | | | | right for you, contact your financial advisor and/or do |
| it just yet. Is it going to make me rich? Probably not. | | | | your own research. Hopefully, I have provided some |
| However, I hope it will eventually put me in a financial | | | | food for thought as well as several resources that |
| position to retire early. This strategy involves actively | | | | might be helpful to you when doing your own |
| trading various no-load market index funds. The | | | | research. |