Investing Both Directions

Investing Both Directions

Hand Putting A Coin Into Piggy Bank In Front Of Blackboard Showing Graph

 

Monday the S&P 500 finally topped its previous high. Yesterday, it added another .7 percent to 2152. It has been a tumultuous fourteen months since the prior high of May 21, 2015. This large cap index dropped over 12 percent to its August low, rose over 12 percent to a lower high on November 3rd, and fell 13 percent to its closing low on February 11, 2016.

The US largest 500 companies’ stock index is now over 17 percent higher than the February low. It is now obvious that the Brexit sell-off two weeks ago was a blip on the radar screen.

Now some people with all cash or fixed income investments will buy stocks at a new high point. Others will sell investments out of fear that the market is too high. Neither are great strategies, but investing sometime has always been better than never, given an intermediate to longer term period of time.

Indexes and individual stocks will always fall and rise, just as do the prices of bonds and other fixed income investments. One way to invest is to take advantage of the inevitable trends as they give opportunity. What if this is an intermediate top for stocks? What if the next major trend is downward again?

Shorting is a means of making profits when investments drop in price. In essence, one can act on a belief that a position will drop in price and then gain on that prediction if he or she is correct. Let me give you an example.

Last fall the S&P 500 hit a temporary rebound high on November 3rd at 2109. Lower high points occurred on December 1st and again on December 29th. So a downtrend was in place. If one had bought a fund such as Rydex Inverse S&P 500 Strategy Fund (RYUHX) on December 31st, he would have earned a 10 percent profit to the bottom on February 11th.

I am not recommending that anyone try this at home, but you should understand that this protective type of investing is available nowadays and not just to the hedge fund billionaires of the world. There are many different styles and strategies of investing, but the simplest rule is to save and keep on saving throughout one’s lifetime. If you don’t save, it will never matter how much your return!

(Past performance is no guarantee of future results. Advice is intended to be general in nature. Statistics from Worden Brothers, Inc., TC2000, 201

July 13th, 2016|Categories: Investment Management, Personal Finances|