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Fund Correlation Calculator to Build a Truly Diversified Portfolio

In another article we discussed measuring risk using standard deviation. Here we will spend just a little more time to introduce the magic of statistics and how understanding standard deviation and other simple statistical measures can reduce your portfolio risk.

What is correlation? Simply put, it’s a measure of how closely two investments track one another. The unit of measure is the correlation coefficient, which can vary in magnitude from 0 (not correlated at all) to 1 (exactly tracking).

Penny Stocks - How to Invest in Penny Stocks

Penny stock get a lot of press, especially in rising markets. What is a penny stock, and how do you invest in penny stocks?

For US investors, a penny stock is typically thought of a common stock that is currently trading for under $5 a share, and is not on one of the major stock exchanges, but is traded over the counter ( aka OTC) and quotes are provided through the Pink Sheets or the OTC Bulletin Board. Typically, stocks listed OTC tend to have low market capitalization (basically the total value of the entire companies stock) and don’t have a lot of trading volume (are “thinly traded”). Even if there is a lot of share volume, since the price is so low there is not a lot of dollar volume. This in itself can lead to a lot of volatility in the stock price.

Sector Rotation Strategy - Simple Rotation Trades Just One Fund a Month

This sector fund trading system uses a strategy of sector rotation that only trades one fund at a time from the Fidelity sector funds (the Select Funds). It’s performance is pretty good overall, although it tends to have drawdowns at least as deep as the overall market.

The overall stock market has had a run of flat performance over the last several years. If you look at the performance of the S&P 500 from 1999 through 2005, you’ll see that it was up about 0.2% compounded annual return, not much better than a money market fund, and the Nasdaq 100 has fared even worse. Granted, it got there in an interesting way, but overall it basically went nowhere.

Investing Like Buffett - What’s it Like to Invest Like Buffett

Originally published in 2006, investing like Buffett BRK has fared better over the last 3 years, as in the 3 years 2006-2008 BRK was up about 8% total (still a little worse than a money market fund) the S&P 500 did a lot worse, losing about 29% in that same period of time.

One of the most common pieces of investment advice is to find a good investment and to simply hold on to it. Known sometimes as buy and hold investing, it doesn’t seem to be working 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 of the contemporary value investor is Warren Buffett.

Low Risk Funds - Hedge Mutual Funds Work to Lower Risk

This article on hedge mutual funds was originally published in 2006. Many of these hedge funds have done reasonably well in the recent market tumult, and it may be time to look into these funds again.

In today’s volatile markets we are always looking for ways to increase our portfolio returns while limiting the downside risk in our investment portfolio as well. There are many more options to do so than even just a few years ago. One recent development are mutual funds that are not structured like typical long only mutual funds. These are funds that don’t invest solely in stocks and bonds.

Best Fidelity Funds to Diversify Your Portfolio

We get a lot of questions about the best funds to build a well diversified portfolio. There are many factors that go into it, but here is an article we published that describes one way to identify some good candidates. This article builds around the Fidelty funds, but the same approach can be used to select ETFs to get many of the same benefits.

Almost any article in the popular press about building an investment portfolio is quick to advise that you need to build a diversified portfolio. You then get some rule of thumb about buying stocks and bonds, or you need to buy 8 stocks from different industries, or you need 5% in precious metals or international stocks.

Momentum Based Investing with Just Mutual Funds

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 alternative that has over 20 years of real time results to back it up, and it’s not an advisory service, but a family of funds that anyone can buy.

Gold ETF Funds and Gold Mutual Funds - Diversifying Portfolios with Gold

Gold ETFs and gold mutual funds can add some needed diversification to your portfolio. In our series on building high return, low risk portfolios, we have learned that an asset class can be of value to our portfolio if it add to the return, or if it is sufficiently uncorrelated to the rest of the portfolio to reduce the risk without reducing the returns.

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.

A Coal ETF - A New Commodity Based ETF in Energy

We have previously taken a look at a handful of commodity based ETFs as a way to diversify your investing portfolio. One of the problems with commodity based ETF’s to this point has been that the choices aren’t really representative of the wide range markets represented by the commodity markets. But that is changing over time, for example a new coal based ETF recently caught our eye.

Gold Mutual Funds - Are They as Good As Gold?

In a previous post, we talked some about the options mutual fund investors had for investing in gold mutual funds. It turns out there are several options we have, and they are a powerful vehicle for adding diversification to your overall mutual fund portfolio. We covered the diversification effects of gold mutual funds previously, but this study focused on funds using gold stocks, primarily gold mining stocks. But we often get questions related to the performance of gold funds, and how correlated they are to the actual price of gold.

Foreign Currency ETFs - A Look at Foreign Currency Fund Choices

What is a foreign currency ETF or exchange traded fund? The first foreign currency ETF was offered by Rydex in 2005, traded as FXE, and it tracks the European Euro against the US dollar.

Now you should be aware that when you are involved in currency trades, you are actually participating in a market that is much larger than the US stock market. The Forex, or foreign currency exchange market dwarfs the US stock market, and is probably the largest financial exchange in the world.

Hedge Mutual Funds - Making Sure Your Mutual Fund Hedge is Working

In volatile market times like those we have had recently, there is a natural increase in interest in hedge mutual funds as a way to protect capital in turbulent times. We surveyed a sample of hedge mutual funds in the past, highlighting a sample of funds that use a variety of techniques to mitigate market risk as part of a hedging strategy. Recently ING has introduced another variant of hedge mutual funds, the ING 130/30 Fundamental Research fund.

Stocks vs Bonds - How Much Should You Invest in Stocks vs Bonds

In a previous article we examined whether stocks are riskier than bonds, concluding that they are, but it is also a function of how you hold bonds, whether individual bonds or bond funds. Given that there is a tradeoff of risk between stocks and bonds, the natural question to ask next is how much you should invest in stocks versus bonds. For example, the conventional wisdom is that it should be a function of your age, as we expect your appetite for risk to diminish over time.

Morningstar Rankings - Using Morningstar Rankings for your Fund Selections

We’ve had a couple of articles on the value of using Morningstar Rankings or Ratings to make your mutual fund selections. It is hard to research mutual funds without running into the Morningstar rankings, you’ll find them even on the brokerage sites like Fidelity or Ameritrade. But the research on how effective a tool they are for predicting a funds future performance does not generally paint a rosy picture. We’ve written on that topic of Morningstar rankings in the past.

Bear Funds - Bear Mutual Funds and ETFs

As we discussed in our previous article on our hedged mutual fund portfolio when the market is moving against the bulls as quickly as it has been recently, its time to take another look at risk management strategies, and in this case specifically hedging strategies. There are a number of ways to hedge your mutual fund or ETF position, but our favorite is the use of bear funds or bear ETFs.

Hedged Mutual Fund Portfolio to Manage Portfolio Risk - Diversification May Not Be Enough

A day like today in the market can make it painful to look at your mutual fund holdings. For example, of the Fidelity Select funds that we track, they were all down anywhere from 0.41% to 3.24% It’s clear that in order to manage mutual fund portfolio risk, diversification alone will not do much on a day like today, when everything is down. (This is an example of what is sometimes referred to as negative co-variance, where market instruments like mutual funds and ETFs tend to be uncorrelated on the upside, but when bad news strikes, they have a greater degree of correlation (i.e. they all go down at the same time).

What Are the Best ETF’s to Trade

What are the best ETFs to trade? We often get questions about the list of ETF’s we use, and why we “only use 50 Exchange Traded Funds” in our system. Aren’t we leaving money on the table, and shouldn’t we be trading all the available ETF’s in order to get the best possible returns from our system?

Is Google Stock Overpriced? - How Inflated Can Google Stock Get?

Has Googles stock price inflated too far? The “fair valuation” of Google’s stock price, and whether is Google is overpriced is the topic of discussion at many a water cooler these days.

The battle of valuing Google’s stock price, whether based on earnings, cash flow, market share growth, aquisition strategy, or some other form of financial engineering is a discussion that we have little to contribute to. I would make the observation that at a current market cap of over 170 billion dollars, that it’s closer to the top than it is a bottom. To make the case that it could be a Peter Lynch ten bagger would imply that it would get to a market cap of almost 2 trillion dollars, which is a pretty rich valuation by almost anyone’s standard.

Trading ETF’s in Odd Lots

We occasionally get the question: Can I trade ETF’s in odd lots. And of course, the answer is “Sometimes.”

ETF Correlation Calculator - Properly Diversify Your Portfolio

One of the things we cover in our discussion of building a low risk portfolio is the need to find investments that have a low correlation to one another and the overall market. This is probably the most powerful tool for reducing risk in your portfolio without the need to suffer a reduction in overall return. The problem is finding those high return but low correlation funds or ETF’s.