Making Money Alert
Investment Themes for 2010 -- Part 1
12/23/2009
It’s that time of year. It is time to start seriously thinking about the investment themes for the coming year. And the way I see it, identifying these themes is no easy task. Coming off what can only be called a remarkably unusual year for stocks and the economy, I think 2010 will be rife with bizarre twists, abrupt turns and some heavy challenges.
During the next 10 weeks, I’ll be discussing my top 10 investment themes for 2010. In today’s first installment, I want to tell you about what I think could be the dominant trend in the year ahead -- rising interest rates.
If we look at the charts below of the 10-Year Treasury Note ($TNX) and the 30-Year T-Bond Yield ($TYX), we can see the recent trend is rising bond yields. Both of these bond yield charts now are well above both their short-term, 50-day moving average (blue line), and their long-term, 200-day moving average (red line).
Why are rates on the move? Well, for one thing, there are a whole lot of Treasury bonds out there for sale in the open market. An ample supply of bonds, and some rather tepid demand, means bond prices must fall (i.e., yields must rise) in order to make these bonds more attractive to potential purchasers.
As the supply of bonds continues getting bigger and bigger in an attempt to fund all of the new federal government debt, look for bond yields (i.e., interest rates) to continue rising.
In fact, I am more convinced than ever that interest rates are going to be much higher in the months and even years to come, and that means you can make some real money with an allocation to investments that benefit in a rising interest rate environment.
Subscribers to my Successful Investing, High Monthly Income and ETF Trader advisory services all have exposure to rising interest rate funds, which tells you how strongly I feel about this investment theme.
Mark my words: interest rates almost certainly will rise in 2010, and if you know how to make this trend work for you, you’ll be way ahead of the investment curve.
A Happy Holiday Stop-Loss Reminder
Although we've seen some push and shove during the last several weeks in stocks, looking at this market through a 52-week lens really tells the story of a bull on the loose since early March.
The chart here of the S&P 500 is unequivocal -- 2009 was a most-outstanding year for stocks. If you were long in this market since March, then congratulations! You most likely have a lot of unrealized gains as we head into 2010.
My recommendation now, however, is to make sure you don't let those gains evaporate. It is essential to have stop losses set on all of your invested positions, as we don't know when this market run could come to a sudden and painful halt. If we do see the market give back in 2010, stop losses will ensure that you don't get caught up in the selling wave.
So, this holiday season, give yourself a present by setting stop losses. If this market gets a visit from the Grinch, then you'll have nothing to worry about.
Are You Ready for Rising Rates?
Last week, Federal Reserve Chairman Ben Bernanke and his band of central bankers signaled the market that the near zero cost of capital is going to continue for some time. However, what you have to remember is that the Fed doesn't control the long end of the interest rate spectrum. Long-term interest rates, i.e., long-term Treasury yields, are a function of market activity.
I think rising interest rates are a very real possibility as we head into 2010 and beyond. In fact, I am of the opinion that interest rates are going to be much higher in the years to come, and that means you should consider an allocation to investments that move higher along with interest rates.
In my latest Rising Interest Rates Special Report, I outline my concerns for the bond market, ways to profit from rising rates, and actions you can take to shelter your portfolio now.
If you have a portfolio made up of bond funds or individual bond positions, now is an excellent opportunity to get a second opinion on your holdings. Contact us for a brief introduction and to schedule a follow-up phone call. We'll conduct a revealing assessment on your holdings, and give you specific recommendations for what you can do to better position your assets for the year ahead.
You can call our offices at 800/391-1118 to setup a consultation, or register online.
NOTE: Fabian Wealth Strategies is an SEC registered investment adviser, and is not affiliated with Eagle Publishing.
ETF Talk: Oh, How I Love Thee
Subscribers to my investment newsletters and trading services know about my passion for exchange-traded funds (ETFs). Over the past year, I have provided you with features relevant to investors who are looking to improve their portfolios with a variety of funds that are both diversified and cost efficient. Now, I want to get back to the basics of ETF investing. Or, to say it more poetically, “ETFs, oh, how I love thee.”
One of the top reasons I love ETFs is their modest cost. ETFs offer low expense ratios, and annual expenses typically are deducted from dividends. ETFs also produce fewer capital gains and are more tax efficient than mutual funds.
In addition, ETFs offer diversification that reduces risk. The funds typically track indexes that are made up of a basket of stocks. Investors can find ETFs that cover every major index, asset class, and sector. Whether you favor commodities, healthcare, technology or real estate, there is a diversified ETF available to you.
ETFs also are transparent, since they are required to disclose their exact holdings and the percentage of each asset that a fund owns. Because ETFs are traded on exchanges just like stocks, the funds provide liquidity to investors who want to buy and sell them in the open market. But remember to be sure a fund's trading volumes are adequate to provide liquidity. While not a strict rule of mine, I generally do not recommend ETFs that have an average volume of less than 100,000 shares a day.
Finally, I love the simplicity and variety of ETFs. You usually can find a bull market someplace, no matter what markets elsewhere are doing. The challenge is choosing the sector or the region that investors will begin to favor next.
In my advisory services, I analyze the moving averages of sectors and different stock markets to help determine the best places to invest. It is a system that has served three generations of the Fabian family well. Once you combine our trend-following approach with the instant diversification offered by ETFs, you gain the dual benefits of a proven strategy and one of the most attractive investment instruments to be introduced in years.
If you want advice from me about which ETFs to buy and to sell, I encourage you to check out my ETF Trader service by clicking here. As always, I am pleased to answer any of your questions about ETFs, so do not hesitate to contact me if you have one. To send your question to me, simply click here. You may just see your question answered in a future ETF Talk.
Financial Success in the New Year
I can't believe it, but 2010 is just about a week away. And soon, we'll all be resolving to not make the same mistakes we made in 2009. If you haven't started making your financial New Year's resolutions for 2010, let me give you a little head start. Here's just a sneak peak at what I want smart investors to resolve to do next year:
- I will prepare my family for an unpredictable economic environment in 2010.
- I will have a positive increase in my liquid net worth.
- I will save in excess of 10% of my gross income in my retirement accounts.
- I will save and safely secure at least three months of living expenses.
- I will stop losing money on bad investments and/or bad investment advice.
I know these resolutions may seem simple, but honestly, did you accomplish all of these goals last year? If the answer is no, then why not make 2010 the year when you do things right?
There is no time like the beginning of a new year to really focus on your goals, so take control of your financial life and make 2010 the beginning of a wonderfully profitable new decade.
The Size of Your Christmas Tree
“Never worry about the size of your Christmas tree. In the eyes of children, they are all 30 feet tall.”
--Larry Wilde
It's nice to be reminded that size doesn't always matter. In the case of Christmas, it's the size of the love that you have for friends and family that matters most, and not the number or amount of money you spend on presents and decorations.
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. Click here to Ask Doug.
Sincerely,
Doug Fabian
P.S. My publisher, Eagle Financial Publications, is now on Facebook. Click here to see our page and be sure to become a fan when you get there.
P.P.S. With the help of global financial stimulus, a number of global markets have rallied from their lows of 2008, providing investors who were invested in the right markets at the right time with healthy returns. Although the question remains -- how do you become one of those investors? For an answer, I encourage you to attend The World MoneyShow in Orlando, February 3-6, 2010, at The Gaylord Palms Hotel and Convention Center, to hear more than 60 leading experts. They will be on hand to provide you with insights and recommendations to help you identify emerging opportunities around the globe. I hope that you will join me there! Visit The World MoneyShow Orlando to register FREE today!