Beginner Investing

Here’s the outline of our course on low risk investing in mutual funds and ETF’s. This course was originally sent out as a series of emails but we have chosen to make it available for you to go through at your own pace. In it we cover many aspects of investing:

Learn about key factors to help you improve your investment performance. Examples include:

* Our 5 factors for Success Investing in Mutual Funds * 3 Techniques to Manage Your Portfolio Risk * Building your Own Hedge Fund

Here are the articles that make up the course. We start with the 5 Factors for Success in Investing in Mutual Funds:

Buy and Hold Investing - It’s Not the Answer

There’s Always a Bull Market Somewhere

Trend Trading - The Trends is Your Friend

Volatility can be the Enemy

Fidelity Funds - The Best Mutual Fund Family for Investors?

Exchange Traded Funds - The Fund Family that Anyone Can Trade

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How do the Fundztrader systems actually work?

That is the single most asked question we get. We touch on it in our introductory articles, but many folks would like more detail.

So we thought we would describe the systems in more detail, for those of your who are interested.

There are a handful of articles, starting with this one

http://fundztrader.com/blog/2007/05/22/fund-selection/

The whole series can be found at

http://fundztrader.com/blog/category/systems/

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Many investors swear by the Morningstar ratings as major tool to guide their mutual fund selections. You see them on brokerage sites, magazine articles, and mutual fund publications.

We’ve seen some articles in the past that were not very complimentary of the Morningstar system. But, giving them the benefit of thedoubt, we though we’d take a look around Morningstar’s own website, and just see how useful these ratings are. If anyone could paint a rosy picture, it would seem they could.

The results of our quick study are at the link below. I’d suggest you read it before you invest any more money using the star rating system.

http://fundztrader.com/articles/morningstar.html

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These days it seems that buy and hold investing doesn’t work as well as it once did. A common response of buy and hold advocates is to point to the success of some of the famous value investors. The most famous and the most successful of the bunch is Warren Buffett.

How have Warren Buffett’s investments been faring these days? In the article below we take a look at the recent record of the “Oracle of Omaha”.

http://fundztrader.com/blog/2009/02/09/investing-like-buffett/

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At some point we are all faced with the question of how much in savings we need to retire. There is a lot of information and misinformation around on this topic.

We take this opportunity to explore the assumptions behind much of the investment advice out there, with the goal of not only understanding the advice better, but going beyond the conventional wisdom to see what we need to do to improve the yield of our savings.

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Do you want to do a better job of managing the risk of your mutual funds? Clearly, for anyone who was investing in the 2000-2002 bear market, you know that it is a sickening feeling to watch the value of your portfolio just continue to erode over a period of months or years.

To help you manage those risks while maximizing your returns, we are starting a series of articles on managing your investment risks.

Read more on keeping more of your hard won profits at:

http://fundztrader.com/blog/2009/02/18/risk-measurement-for-an-average-investor/

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So, what about market timing to reduce portfolio risk?

Sometimes it’s just not productive to be in the market, so a common request is to find a way to time fund purchases as a way to either improve your overall returns, or at least to reduce the risk and volatility of your returns. The problem doing this with mutual funds is twofold:

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Last time we cover the fact that one of the problems with market timing and mutual funds is the fact that the mutual funds companies have gone out of their way with Early Redemption Fees (ERF’s) and minimum holding periods to make it difficult for investors to move their own money around as they see fit, with minimum holding periods of 1-6 months as very common.

Of course, with Exchange Traded Funds (ETF’s), this restriction disappears almost completely. This allows us to reduce risk in ways that can’t be done with mutual funds.

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As we review some basic approaches to managing your portfolio risk, we have been covering basic market timing. We often get questions about market timing systems that are offered by different advisory services, and the possibility of incorporating them into our systems.

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If you’ve done any reading or watched any TV on the topic of investing, you’ve undoubtedly run into the topic of diversification, and heard how important it is. It’s often the only real form of portfolio risk management that is generally recommended in the popular press, but it seems to often that folks write about it without really comprehending what makes it work.

So what makes for a good fund choice?

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We last talked about standard deviation, which can be used as a measure of risk. Today we’ll go over another statistical measure, carefuly avoiding any real math.

One other concept to be aware of is that of correlation. It turns out that if you pay attention to the correlation of your investments, you can significanly reduce the risk of your overall portfolio without sacrificing the returns. In essence, you can have your cake and eat it too!

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Last time we looked at managing risk (as measure by the standard deviation of returns) by combining funds in our portfolio that were uncorrelated, (that is they don’t track each other very well on a day to day basis.)

But how well does this work with real funds? We take a look at a real world example and see that it can work fairly well.

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Today we continue looking at techniques you can use to manage the risk in your mutual fund portfolio.

Last time we found that using uncorrelated funds assembled in a portfolio gave us a powerful tool to manage risk, while maintaining good portfolio returns.

But it would seem that if we were to choose funds that had a higher return and a lower risk to start with, the end result would be that much better.

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What do farmers and airlines know that you don’t?

So far in our series on managing risk we’ve taken a look at market timing and portfolio diversification as two powerful techniques to control risk in our mutual fund portfolios. Today we’ll take a look at the third and final one: hedging.

Now, I’ll note up front that hedge funds have tainted the whole concept of hedging, primarily because most hedge funds don’t hedge. Many of them use highly leverages techniques that have nothing to do with hedging. That’s not what we are talking about here.

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Last time we covered the possible advantages of hedging your portfolio as another way to reduce risk. This time we will cover a method to do exactly that using only mutual funds or ETF’s that can be purchased in a cash brokerage account or IRA.

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Last time we covered the concept of leveraged short index funds, and looked at a few examples of them. Today we will cover the idea of building a hedged portfolio of mutual funds using one of the leveraged short funds as the hedging instrument. It’s actually simpler than it looks, and the results are quite impressive.

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We’ve just recently covered the power of hedging in your mutual funds portfolio.

The whole concept of hedging can be a little more that some investors want to deal with, but yet they see the advantages of eliminating some of the market risk in your portfolio.

We recently published an article that discusses some mutual funds that do the hedging for you.

You can read more here:

http://fundztrader.com/blog/2009/02/09/hedge-mutual-funds/

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Some time ago we studied the savings level that you would need to yield your desired income level for retirement based on the conventional wisdom.

One of the conclusions was that a major variable in the level of savings you would need to yield your desired retirement income was the risk level of the portfolio, more so than even the length of time, and as large an impact as the average return. We also noted the level of savings needed was quite high!

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Now that we’ve gone through our series on risk management for our portfolios, I thought we would go back and look at how a fully hedged portfolio will slash your target savings level for retirement.

The full story can be found at

http://fundztrader.com/blog/2009/02/27/how-much-do-you-need-to-retire-it-may-be-less-than-you-think/

You have studied the idea of momentum or trend following investing, and are convinced that it can work. You understand that it can provide above market returns with lower risk. But the idea of trading funds every few months seems like a lot of work, and you don’t seem to have the discipline to actually follow the trades, or you are reluctant to pull the trigger on making these trades.

There is an easy alternative. Read more at

http://fundztrader.com/blog/2009/02/05/momentum-based-investing-with-just-mutual-funds/

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We would all like to have some edge when it comes to the markets. We have discussed some stock market timing approaches as one way to mitigate the market risk. However, one limitation almost all these market timing systems have is that they are the result of some type of backtesting or simulation. The result is that while it may look good on paper, it’s difficult to have much confidence in their real time performance until they develop something of a track record.

Here’s one that has worked for 25 years in real time:

http://fundztrader.com/blog/2009/02/22/fosback-seasonality-timing-system/

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We are constantly on the lookout for ways to both diversify our portfolios, while simultaneously improving the risk adjusted return. ETF’s have many advantages over traditional mutual funds, e.g. the ability to trade interday, no early redemption fees, low cost structures, and are not typically tied to the track record of an individual fund manager.

However, being tied to passive market indices leave little room to beat the market. But a new class of ETF’s has been introduced that intends to do exactly that.

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One common piece of investment advice is to add precious metals, often specifically gold, to your portfolio as a way to hedge or reduce the overall risk of the portfolio. The rationale, of course, is that gold often moves in the opposite direction of the overall market, as when there is a great deal of uncertainty, or the fear of inflation, or even something as severe as the threat of war, then gold will often move up in value.

But what kind of impact does it really have on your portfolio? Today we take a look at adding gold to our portfolio and the improvment that it will make.

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In our course we have talked about the need to have a properly diversified portfolio, and how diversification only really works if you have funds that are not correlated to one another.

If you are building your own portfolio, especially if you have part of your portfolio with fixed allocations, this will be of critical importance.

Easier said than done, it would seem. How do we determine which funds have low and high correlation to one another?

Recently we ran across a free tool that can help with determining the correlation between funds in your portfolio. Read more on this at:

http://fundztrader.com/blog/2007/06/22/etf-correlation-calculator/

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