Making Money Alert
Is The Rally Here?
01/28/2009
The big news in the markets this week is the very strong rally, which was prompted by two key factors. The first is the expected Congressional approval of an $816 billion economic stimulus plan. Yes, that's billion, with a "b".
The second factor driving stocks higher is today's announcement by the Federal Reserve Open Market Committee that it would, "…employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability."
The markets liked the sound of that, because it means that the Fed is firmly on board with the government's broader efforts to combat recession and to ameliorate the damage done by the financial crisis. I heard one "mad" market commentator say this was the biggest buy signal he's heard in years.
Whether the Fed or other governmental attempts to cure an ailing economy will work are all legitimate points of some very heated debate, but there is certainly no debate that bull-starved equity buyers liked what they heard today.
I think that we are going to see a nice bounce in the markets here as a result of the new stimulus, the new focus by the Fed, and the new assurances by the federal government that the banking industry will not be allowed to fail.
The question for you, the investor, is how long is this bounce going to last.
I certainly think that today's push higher could continue for a while, but I also think that we have to remember that this rally must be considered just another bear market rally until proven otherwise.
This is not to say you can't make some good money in bear market rallies. In fact, just today I recommended that clients of my ETF Trader advisory service take two new positions designed to profit from this bear-market rally.
Now, if you are a regular reader of the Alert, you know that one of my big themes for 2009 is taking advantage of what will likely be a series of short-term bear market rallies. To reread all of my themes for 2009, click here .
One of my other big themes this year is that you need to have enough cash on hand so that you can take advantage of bear market rallies as they occur. If you don't have some money at the ready to pounce on the inevitable bounces that take place during down markets, you aren't going to be able to make much money this year.
If you'd like to find out more about my ETF Trader service, click here (insert ETF Trader offer link).
What's The Best Obama Investment Right Now? CASH!
Ever since President Obama took his place in the big chair at the Oval Office, I've been inundated with questions about where best to invest for the Obama era.
And while I think that historically speaking, no president has all that much influence on events in the stock market, I do think current conditions in Washington and Wall Street do require you to make some adjustments with your portfolios.
I think the best Obama investment right now is cash.
A high cash position ensures that you will be protected from any further declines in the market. More importantly, a high cash position enables you to get back into stocks when the market turns.
Just today we've seen a sharp market turn, and though this may be fleeting, you must remember that the winds of change often blow in fast and furiously. But in order to take advantage of that change when it comes, you have to be ready and waiting on the sidelines with a high cash position.
I know that after some years of always wanting to be invested in the market, it can be hard to just wait things out on the sidelines. But if there's one thing I can assure you of, it is this -- when it comes to investing, sometimes patience is the greatest virtue.
My advice to all of you is to exercise control and discipline, and that you are not to rush into any investment foolishly. Remember that the beauty of a high cash position is that it puts time on your side -- as long as you exercise the virtue of patience.
ETF Talk: Change We Can Believe in for 401(k)s
Although exchange-traded-funds (ETFs) are finding their way into the portfolios of many investors, they have yet to make much headway in 401(k) retirement plans. But that situation could start to change. If current drawbacks to using ETFs in 401(k) plans are resolved, the ETF industry would gain increased working capital, heightened revenues and earnings, and enlarged market share at the expense of mutual funds.
It also would open up the world of ETFs to a much bigger pool of investors. Mutual fund companies recognize the competitive threat and counter that they provide many low-cost, index-tracking funds that essentially perform the same service as ETFs.
It would not surprise me at all if many 401(k) providers were eyeing ETFs to supplement their array of mutual fund offerings. The sheer breadth of ETFs gives asset managers a spectrum of investment possibilities. The vast selection will allow retirement portfolios to be cobbled together that are best suited for the individual circumstances of people across a wide range of ages and income brackets.
Ideally, a retirement portfolio should have access to funds that mirror all types of market indexes, ranging from the S&P 500 to overseas stock exchanges. If there is anything that the bear market of 2008 has taught us, it has been to diversify. Just ask any wealthy investor or hedge fund manager who used Bernard Madoff to manage money. In the wake of industry scandals and poor performance by money managers, ETFs that track indexes and stock markets are becoming increasingly attractive.
ETFs still have hurdles to overcome before their use in 401(k) plans becomes common place. A correctable weakness for ETFs is that their use in 401(k) accounts involves the payment of fees by plan administrators that -- when used inside a "collective trust"-- can be higher than the fees for mutual funds. However, that current disadvantage is limited to the use of ETFs in 401(k) accounts and can be remedied.
A 401(k) record keeping company, Invest n' Retire, of Portland, Ore, has developed a technology to trade ETFs cost-effectively in 401(k) plans. The firm's software allows ETFs to be traded in real-time at institutional pricing. Coupled with lower management fees, ETFs are becoming attractive investments in 401(k) plans.
ETFs still retain decisive advantages, compared to mutual funds. For example, ETFs offer intra-day trading to allow their purchase and sale throughout a trading day as share prices change. If an investor decides to trade an ETF, the transaction can be processed within seconds to eliminate market risk. In contrast, mutual funds keep the same price throughout a trading day and only revise it the next day after the market closes. That limitation for mutual funds leaves their investors vulnerable to market volatility during the course of a day. Right now, a growing number of mutual fund investors are pulling out their money -- driving down fund values for the remaining shareholders.
Clearly, ETFs are making inroads in their competition with mutual funds. As always, if you have any questions about ETFs that you'd like me to answer in an upcoming ETF Talk feature , please click here .
20 Questions to Ask Your Advisor 2
I recently came across a statistic published by the SEC's Office of Investor Education, which stated that more than 50% of investors seek the advice of some type of advisor when making financial decisions.
But the problem here, as I see it, is that most investors really don't know the right questions to ask their advisors. How do you know that your interests are being served by your advisor? How do you know if your goals comport with the kind of investments your advisor recommends? The only way to know is to ask the right questions.
Unfortunately, it's just a fact that most investors aren't as financially literate as they need to be, and this is a situation I won't stand for any longer.
To help you better understand your financial relationships, I have compiled my list of 20 questions to ask your advisor. A complete list of questions can be found by clicking here.
If you find your advisor unable or unwilling to give you satisfactory answers to any of these questions, you may want to rethink your relationship.
ETF Report 2008 -- The Final Results Aren't Pretty 2
As you might expect, the final performance results for most ETFs in 2008 wasn't very pretty. In fact, it was downright coyote ugly!
Interestingly, despite the tremendous bear market in 2008, the number of new ETFs that came to market during the year was remarkable. There were 764 total ETF offerings by year's end, which is 154 ETFs more than there were at the end of 2007.
Notable new trends in the ETF landscape include new triple-levered funds, new currency oriented funds, and new international market funds.
I know it might not be a comfortable task, but if you want to remind yourself of how bad things were in 2008, then take a peek at the year-end ETF Report by clicking here.
ETF Trader Ranked No. 4 in 20010
The Hulbert Financial Digest just published its list of the Top 10 performing newsletters of 2008, and I am proud to report that my ETF Trader advisory service came in fourth overall!
Our total return of +13.2% bested nearly 200 other newsletters to capture the number four spot on the prestigious list. In terms of dedicated ETF services, ours topped the list. To read the MarketWatch article, click here .
I must admit that this is an enormous source of pride for my team and me. In a year when the S&P 500 was down nearly 40%, and in one of the toughest market environments in history, double-digit percentage returns are almost unheard of. Yet that's what we managed to accomplish with a little sound judgment, some tight stop losses, and some great timing.
In this oh-so-difficult year, it's nice to be recognized for thinking unconventionally, and for some solid money-making moves.
If you'd like to find out how to make money using my ETF Trader advisory service, simply click here.
A MESSAGE FROM A MAKING MONEY SPONSOR
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The only thing you have to gain is the life you desire.
Wise Advice for the Challenges Ahead
My counterpart, my foolish heart
A man must learn to rule his tender part
A warming trend, a gentle friend
A man must build a fortress to defend
A secret face, a touch of grace
A man must learn to give a little space
A peaceful state, a submissive trait
A man must learn to gently dominate
-- Rush, Animate
The challenges the world faces today are immense, and I have sympathy with anyone trying to tackle the issues of the day. I try to do my part to make the world a little better place every week here in the Alert , and I try not to be too critical of those that I disagree with vehemently. I think that for the most part, and with the exception of a few extremists, we all want a better world. Hopefully, we can defend our fortresses with a touch of grace -- and learn to gently dominate.
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, Click here to Ask Doug.