WHAT’S AN INVESTOR TO DO?

By seadmin

When it comes to a recession, there are some messages that bear repeating. One of the key messages is: WARNING: There has never been a recession without a bear market, and I mean never. So, now you understand the battle the Fed is waging, as well as the likely economic fallout that such a war will bring. It’s time for a quick lesson on how you can make money in the bear market that will be brought on by the economic downturn.

Let me say that, without a doubt, the most significant event that has occurred in the investing world is the proliferation of exchange-traded funds (ETFs). They focus on specific sectors and markets, while maintaining a level of transparency, low fees and liquidity that you will never find in a managed fund. The ranks of ETFs have doubled both in number and market capitalization in just the last three years. ETFs are efficient because you can get exactly what you want, and they trade like stocks, so you can get instant pricing.

Naturally, at this point, you’re wondering, "Doug, what do ETFs have to do with bear market investing?" The short answer is: "EVERYTHING."

ETFs are an important bear market tool because they enable you to invest in specific markets and industry sectors. This way, you can buy the few specific areas that stand to profit during an economic decline. And, you can do so without buying anything further. With ETFs, there is no added fat to weigh down your profits. Unlike actively managed funds that rely on the speculative whim of a fund manager, ETFs will give you exactly what you want, when you want it, with no management fees, and with low, low expenses.

All of these factors are important in a declining market climate. Everything can rise in a bull market — even expensive and inefficiently managed funds can eke out a gain. But bear markets are different. Investing for profits in a bear market means you have to hone your category, your sector, and your expenses with laser-beam precision to earn profits and to keep them. And, that is exactly why ETFs are my first line of portfolio defense and profit growth for investing in bear markets.

ETFs can give you bigger returns because they enable you to concentrate on the specific areas that show strength in the face of a decline. Certain sectors, markets and regions will rise even in a bear market. But, there’s one key point to keep in mind: Even though they’re indexes, many ETFs pack a high level of concentration. That’s what makes them so profitable when you play them right. But it also makes them volatile if you don’t have the knowledge, attention or discipline to manage them wisely. A case in point is the Energy Select SPDR (XLE), which was a great way to profit from the recent run-up in oil. Investors who got in early captured gains of as much as 30% in the six months from November 2005 to May 2006. But, that trend was long in the tooth and energy became completely overbought. That specific ETF tanked in July. Investors who stayed too long gave up all but about 10% of a huge profit.

Successful Investing subscribers completely eliminate that kind of round trip. We get in to capture the most concentrated market momentum, and then we get out when the trend starts to break down — in any and every market climate. We have the tools, the know-how, and the 28-year discipline that you need to make more money and to keep it. Want to learn more?

Click here to learn more about Successful Investing

I hope you have a very Happy Labor Day!

"Man is the animal that intends to shoot himself out into interplanetary space, after having given up on the problem of an efficient way to get himself five miles to work and back each day."

–Bill Vaughan

Sometimes we plan out our solutions to the big problems, while ignoring the smaller things. Sure, it’s necessary to set goals and make long-range plans, especially when it comes to money and investing. Just don’t forget that the everyday decisions you make with your finances are important, as well.

Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow Alert readers, send it to me, along with any comments, questions and suggestions you have about my radio show, newsletters, seminars, or anything else.