This may be a longer blog, with a lot of things being said. Hopefully it’s not something you just read, but something you can try to implement.
For those readers of this blog that are younger, mid 20's, who have excess capital, now is the time to begin to accumulate wealth (do not depend on trust funds from mommy and daddy, that would be pure laziness and you'd be missing an opportunity to build your foundation of wealth, on your own). It will not come over night, but you need to start somewhere. Due to our economy, our markets, our countries significance in the global markets, and most important, our time horizon and generation, You would be doing yourself a disservice not to start investing, even if it is just $100-200 per month in a Roth IRA, Traditional IRA (Non-Deductible IRA if you are covered by a Qualified Plan), or through a general Brokerage Account.
Yet, There is no need to feel rushed to buy shares of companies because we are young (inexperienced) and have the time horizon to allow the market price to recover. Yes, the S&P is sitting at 683, and yes, a lot of companies seem to be a great bargain today. But when the S&P experiences a "Mini-Bull-Market", and grows to just 850, we are still far from the 1400 we fell from. Thus, their will still be undervalued equities waiting to be exploited, and the real Bull Market possibly around the corner.
Another reason why it's tough for younger investors to really capitalize on this bear market is because our government is dumping loads of money into the economy, and of course, the markets. I am not sure if that will be a good thing or a bad thing, only time will tell and I believe we need to give it some more time (excluding the credit market). But it's not the money funding new programs and financial incentives to support our countries growth that makes me ponder, it’s the idea that our government, for the 1st time in our Country's history, could own hefty stakes in numerous companies that have been the face of our "Blue-Chip" indexes for the past decades.
Through my studies, I have learned that “buy and hold” is critical when employing your financial plan and that in the long run, a 60-40 allocation will provide the return that a more aggressive allocation could provide, without the volatility and risk (Efficient Frontier Theory). With our government’s actions and my inexperience, I do not know what to buy and hold, as is evident from my initial stake in USO when it was selling at $48 a share (I still own it).
Yet, I have been utilizing other ETF's, and more recently, Leveraged ETF's with success. For one, they are cost efficient in comparison to the expense ratio of Mutual Funds while providing diversification, and, attractively speaking, they can be traded just like stock throughout the day. If you buy them through a Broker (financial advisor), you will most likely pay $20-25 per trade, but if you buy them yourself through a discount brokerage firm, you are looking at anywhere from $7-13 (think about your "true" cost basis when you pay a commission).
If you like the idea of day trading and market timing or if you like the idea of buy and hold, using ETF’s and, more specifically, using Leveraged ETF's is one heck of a way to bolster your returns in the short-term or over the long-haul. My most recent success has been to use Leveraged ETF’s more as an actively traded instrument.
As I mentioned, the S&P is sitting at 683, so one general strategy would be to look at a Leveraged ETF so when the S&P experiences a mini-rally, you walk away with more than just a couple percentage points. Yes, ProShares and Rydex, to name a couple, have some nice leveraged ETF's, but Direxion has some newer leveraged ETF's, some of which will provide you with a 250% - 300% return on your $$$.
Another idea to think about; we all know Energy is our future, but who knows when that future will come to fruition and peak. Why not look at ERX (300%) as something you can hold while continuing to evaluate the external environment.
I am a big fan of Leveraged ETF's, and ETF's in general, and have crafted many "day-long portfolio's" (based on global news, previous trading day events, and morning future prices), "week-long portfolio's", and "buy and hold" portfolio's while maintaining exposure to numerous asset classes, sectors, and securities in general, all through the use of ETF's and Leveraged ETF's.
I will leave you with this; “I am no expert, but I am learning through trying.”
Dougie Fresh
