An investment strategy is a protocol and methodology for allocating funds of a portfolio. This strategy is based on an investor’s risk profile. The more risk the investor is willing to take, the greater the potential returns, but also the higher risk of a loss in capital. There is a whole universe of investment strategies, from the least risky of buying treasury bills and government bonds with high credit ratings, to the more risky of buying stocks based on fundamental analysis, technical analysis or simply buying and holding for the long term. Some investors also look to stocks with dividends that return a yield over time, to mitigate some of the risks of the stock market.
If you invested all of your money in the stock market, you would be exposed to extraordinary risk of a market retrenchment.
Of course, you could also make a lot of money, especially with how well things are going in the current bullish stock market that continues to somewhat defy gravity.
Yet this is also the time you need to take some extra precaution and think about where you are at and what your end goal is in the stock market.
You don’t want to risk your entire investing capital on the stock market, in spite of any temptation to do so. This is when you have to fight against the greed that might be in you—the greed that’s in most of us—and it won’t be easy.
Remember what happened after each of the multiyear peaks in the stock market over the past decades, when the stocks retrenched. I’m not saying the stock market is at a peak. In fact, the bulls look like they are in full control and heading higher on the chart.
You just need to be on top of things, and don’t let greed ravage your sensibility toward the stock market.
Chasing dreams is one thing, but being prudent is another.
I’m not going to say you should run for the exit, but you need to be aware of where your capital is being invested and understand the associated risk factors.
The reality is that a sound investment strategy means understanding asset allocation and diversification to increase the risk and return of your portfolio.
By asset allocation, I refer to the asset mix of your portfolio … Read More
Bank stocks have been one of the strongest sectors in the market over the past year. Bank stocks have rallied sharply after many investors dumped shares on fears that the financial crisis might worsen. Those fears obviously never materialized, and many bank stocks have begun to resume paying dividends and generating profits.
There are two questions I am often asked: 1) is it too late to incorporate bank stocks into one’s investment strategy; and 2) if someone has already owned bank stocks over the past couple of years, is this the time for that investor to start taking profits?
Since the fall of 2011, an index of bank stocks has almost doubled in value. Clearly, an investment strategy that owns a number of bank stocks has seen significant gains in this sector. But no one can rationally expect this type of return to continue forever.
Part of my cautious view on bank stocks, in terms of reducing the sector weighting in an investment strategy, is the fact that there is a limit to upside capital appreciation in every sector. A big question when developing an investment strategy: what is the future outlook for the sector?
Obviously, the low-hanging fruit has already been picked when it comes to bank stocks. Regardless of what was thought about bank stocks in the past, as an investor you are only interested in the potential for growth in earnings and revenues. Large gains have already been realized; now we need to consider how bank stocks fit into an investment strategy over the next decade.
Large concerns for bank stocks shareholders are increased regulation and a … Read More
The massive sell-off in the price of gold bullion has certainly shaken up some investors. However, it seems there are others whose investment strategy has been to wait for a pullback in gold to continue accumulating the precious metal.
Recent data has shown that China imported gold bullion from Hong Kong at a record-high level in March. Net imports into China of gold from Hong Kong were 130,038 kg, compared to 60,947 kg of the yellow metal in February, according to Bloomberg. (Source: “China’s Gold Purchases From Hong Kong Expand to Record,” Bloomberg, May 7 2013, last accessed May 8, 2013.)
While these imports happened prior to the sell-off in the price of gold bullion in April, China has clearly been using an investment strategy to continually accumulate the precious metal whenever it can. With the price of gold in April dropping 14% in just two days—the biggest sell-off in 30 years—this led to an increase in demand for jewelry and coins in China.
Essentially, gold transactions have increased as many more participants use the metal for trading purposes as an investment strategy. Exports of gold from China into Hong Kong were 93,481 kg, a huge jump from February’s exports of the yellow metal of 36,159 kg. Profiting from the volatility, trading in gold continues to skyrocket globally.
The volume of gold bullion on the Shanghai exchange hit a record high on April 22 of 43,272 kg. As more traders use gold in their investment strategy, transactions continue to increase substantially. Following the sell-off in gold bullion prices on April 15 and 16, the China Gold Association reported that retail … Read More
An investment strategy can take many forms. For long-term investors, one investment strategy is to wait for significant pullbacks and enter positions when the price declines.
The recent sell-off in gold bullion has created a substantial increase in demand for the precious metal around the world. It appears that many long-term investors globally are using the investment strategy of buying on dips when it comes to gold.
Following the biggest sell-off in the price of gold bullion in 30 years, international investors are taking the pullback as an opportunity in their investment strategy to accumulate the metal. A sign of demand is the premium that gold buyers are willing to pay.
In many parts of the world, such as Dubai, physical gold bullion prices paid by wholesalers are trading at a premium of $6.00–$9.00 an ounce over the spot rate in London, versus a premium of only $0.50 prior to the sell-off, according to precious metals service provider MKS (Switzerland) SA. (Source: Sim, G., “Gold Rush From Dubai to Turkey Saps Supply as Premiums Jump,” Bloomberg, April 30, 2013, last accessed May 3, 2013.)
The gold bullion trade in Dubai was worth approximately $56.0 billion in 2011, up from only $6.0 billion in 2003. The premium for physical gold is even larger in Turkey. Gold traded as much as $25.00 per ounce higher on the Istanbul Gold Exchange versus London’s price for gold.
The increase in demand for physical gold bullion is a sign that many long-term holders have the investment strategy of buying when the price dips. Considering that the recent sell-off in gold was so significant, long-term bulls … Read More
As the S&P 500 enters the month of May, many people are worried about their investment strategy, especially in light of the old saying “sell in May and go away.” Does this saying hold any value?
Let’s look at the question from two angles: a historical context and the S&P 500’s currently position.
There are some historical facts that raise a few concerns in my mind regarding an investment strategy in the market during the month of May and early summer—not only in terms of actually selling off, but also in terms of increasing volatility.
A look at the best and worst performances for the month of May since 1928 by Bespoke Investment Group, LLC shows that for the S&P 500, two of the top-10 worst Mays (May 2010 with a 8.2% contraction, and 2012 contracting by 6.27%) and one of the top-10 best Mays (May 2009 with 5.31% growth) occurred during the recent bull market that started in 2009. (Source: “S&P 500’s Best and Worst Months of May Since 1928,” Bespoke Investment Group, LLC web site, April 30, 2013, last accessed May 1, 2013.)
Clearly, volatility in the S&P 500 has increased substantially for the month of May for the past few years over the course of the current bull market, and your investment strategy certainly needs to take that volatility’s timing into account. Additionally, since the bull market’s beginning in 2009, the S&P 500 during the month of May has averaged a decline of 2.64%.
Looking even further back, many investors have continued to alter their investment strategy for the S&P 500 during the month of May—and the … Read More