Tag Archives: spy

Creating Wealth For The Average Joe – An Investment Plan And Model Portfolio

Summary The problems of the $10,000 chart. A plan to micro-invest. Results using three broad market ETFs: The Average Joe Broad Market Portfolio. We’ve all seen the brochures and charts. Almost every ETF, mutual fund, and even portfolios (mock or real) on this website and others show the historical evidence of where we would be today if we had invested $10,000 at some point in the past with whatever financial investment the perpetrators are shilling at the moment. To make matters worse, quite often the comparison is made to one of the large indexes. This is not the real world. In the real world, there are expenses and more often than not, resources far less than $10,000 to invest in any particular method or investment. What we need is a real-world comparison that allows the average Joe know what the “true” benefits of a particular method may be. To that end, I introduce the Average Joe baseline comparison portfolio. This portfolio and methodology can be used by this viewing audience to answer those questions and show the readers that even small investors can create a plan that will provide them with wealth in the long run. Investing in small amounts — the micro-investment plan for the Average Joe The first part of any investment plan is coming up with the money. Most internet-based brokerages allow accounts with as little as $500.00 to open. My first assumption is that most people would be able to justify this level of investment. The second assumption is that people would be able to save and add small amounts each week to keep adding to this investment. For this part of the plan, add small amounts each week and slowly increase these amounts. Learning to save along the way with small incremental jumps will become easier with routine and time. The amounts will start out small, just $5.00 a week, and increase a dollar per week each year as they become accustomed to the savings routine. As time progresses, the amount per week will increase in increments. First jump will be to a $2/year per week jump, then $4, then $6. This is how the fund inflow will look for the first six years: Year Amount Yearly total Cumulative Total Initial $500 $500 1 $5 per wk $260 $760 2 $6 per wk $312 $1072 3 $7 per wk $364 $1436 4 $8 per wk $416 $1852 5 $9 per wk $468 $2320 6 $11 per wk $572 $2892 This continues with increase in weekly amounts every year as follows: Years Annual Increase Weekly Investment Amount Invested Cumulative Amount 1-5 $1 per wk $5-$9 $2320 $2820 6-10 $2 per wk $11-$19 $3900 $6720 11-15 $4 per wk $23-$39 $8060 $14780 16-20 $6 per wk $45-$69 14820 $29600 21-25 $8 per wk $77-$109 24180 $53780 Market representation A lot has been written on the relative merits of the big index funds. But the bottom line is that these funds have increased in value over a long-term span. They are not for the faint of heart (last week for instance) or for the typical trader. Sticking with the market has proven to be the way to go in the past. It is with this concept in mind that I chose the three large funds that represent the S&P 500 (NYSEARCA: SPY ), the NASDAQ (NASDAQ: QQQ ) and the Dow Jones Industrial Avg. (NYSEARCA: DIA ) to test out the real world gains offered by following the Average Joe investment method outlined above. Timeframe and investment rules SPY has been around since early 1993. DIA started in early 1998 and QQQ started in Q1 of 1999. So for this group, I chose a start date of January 1, 2000. I started a mock new fund every January 1 with the same three funds. I continued with each portfolio through the present time and re-invested all dividends. A Buy and Hold/DCA strategy was employed for the portfolios. The initial investment of $500 usually allowed an investment in all three ETFs to start. The investment strategy then allowed for purchase of additional shares as they could be afforded with the input and dividends, rotating the investment through SPY, QQQ and DIA (in that order). In cases where a difference in the number of shares purchased initially in each fund occurred, shares of the three funds were equalized before beginning the plan laid out in the chart below. As funds became available through the input of cash and dividends collected, shares in each fund were increased per the following plan: 1 purchase of 1 share, 2 purchases of 2 shares, 4 purchases of 4 shares, 8 purchases of 8 shares, etc. A retail commission of $7.00 per transaction was applied to all purchases. Current positions (shares) Fund Start Shares- SPY 8/24/15 Value Shares-QQQ 8/24/15 Value Shares-DIA 8/24/15 Value Cash on Hand Total Value 1/1/00 54 $10,758.96 55 $5,809.10 46 $7,648.42 $1,201.08 $25,417.56 1/1/01 46 $ 9,165.04 46 $4,858.52 46 $7,648.42 $ 313.11 $21,985.09 1/1/02 38 $ 7,571.12 38 $4,013.56 38 $6,318.26 $ 465.20 $18,368.14 1/1/03 39 $ 7,770.36 31 $3,274.22 31 $5,154.37 $ 101.40 $16,300.35 1/1/04 31 $ 6,176.44 23 $2,429.26 23 $3,824.21 $ 455.68 $12,885.59 1/1/05 23 $ 4,582.52 23 $2,429.26 19 $3,159.13 $ 498.35 $10,669.26 1/1/06 19 $ 3,785.56 19 $2,006.78 15 $2,494.05 $ 329.73 $ 8,616.12 1/1/07 15 $ 2,988.60 15 $1,584.30 11 $1,828.97 $ 634.48 $ 7,036.35 1/1/08 11 $ 2,191.64 11 $1,161.82 11 $1,828.97 $ 647.01 $ 5,829.44 1/1/09 11 $ 2,191.64 11 $1,161.82 7 $1,163.89 $ 519.69 $ 5,037.04 1/1/10 7 $ 1,394.68 7 $ 739.34 7 $1,163.89 $ 366.12 $ 3,664.03 1/1/11 7 $ 1,394.68 5 $ 528.10 5 $ 831.35 $ 24.84 $ 2,778.97 1/1/12 5 $ 996.20 5 $ 528.10 3 $ 498.81 $ 70.62 $ 2,093.73 1/1/13 4 $ 796.96 2 $ 211.24 2 $ 332.54 $ 150.61 $ 1,491.35 1/1/14 2 $ 398.48 2 $ 211.24 2 $ 332.54 $ 25.32 $ 967.58 1/1/15 1 $ 199.24 1 $ 105.62 1 $ 166.27 $ 164.47 $ 635.60 The gain or loss as well as other pertinent data on these funds is in the chart below. Fund Start Total $ Input Total Dividends Total Invested Gain/Loss Expenses Avg. Annual Expenses 1/1/00 $15,871.00 $2,006.55 $17,877.55 $7,540.01 $238.00 $15.11 1/1/01 $13,618.00 $1,650.44 $15,268.44 $6,716.65 $231.00 $15.66 1/1/02 $11,662.00 $1,375.10 $13,037.10 $5,331.04 $196.00 $14.25 1/1/03 $ 9,897.00 $1,204.07 $11,101.07 $5,199.28 $189.00 $14.82 1/1/04 $ 8,354.00 $ 914.52 $ 9,268.52 $3,617.07 $182.00 $15.49 1/1/05 $ 7,019.00 $ 721.47 $ 7,740.47 $2,928.79 $168.00 $15.63 1/1/06 $ 5,892.00 $ 558.19 $ 6,450.19 $2,165.93 $147.00 $15.08 1/1/07 $ 4,932.00 $ 425.41 $ 5,357.41 $1,678.94 $133.00 $15.20 1/1/08 $ 4,082.00 $ 328.14 $ 4,410.14 $1,419.30 $119.00 $15.35 1/1/09 $ 3,337.00 $ 273.66 $ 3,610.66 $1,426.38 $ 98.00 $14.52 1/1/10 $ 2,696.00 $ 184.04 $ 2,880.04 $ 783.99 $ 91.00 $15.83 1/1/11 $ 2,159.00 $ 118.80 $ 2,277.80 $ 501.17 $ 84.00 $17.68 1/1/12 $ 1,708.00 $ 78.07 $ 1,786.07 $ 307.66 $ 70.00 $18.67 1/1/13 $ 1,310.00 $ 41.44 $ 1,351.44 $ 139.91 $ 49.00 $17.82 1/1/14 $ 959.00 $ 17.36 $ 976.36 ($ 8.78) $ 42.00 $24.00 1/1/15 $ 665.00 $ 4.55 $ 669.55 ($ 33.95) $ 21.00 $28.00 As you can see, using this methodology, the Broad Market portfolios gain consistently except for the last two fund starts. Every other start since 2000 is profitable, averaging 7%-9% gains per year. The last two starts have obviously been hurt not only by the ongoing late August/early September topsy-turvy ride of the markets, but also by the heavy expense ratio seen at the early stages of this method. We now have a real-world comparison for the Average Joe to measure various other investments against: the Average Joe Broad Market Portfolio. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: Long AAPL, IVR, PSEC, REM, ORC, LMLP, ECT, GOOD, SMHD, BDCL, MORL, CEFL, CYS, DVHL, ETV, GGE, and NSC

This Bear ETF Will Hedge Your Portfolio

Thanks to persistent weakness in China, worries over global repercussions have intensified. In fact, some are of the opinion that the China turmoil, plunging oil price and slowdown in key emerging markets will knock out chances of the Fed’s September lift-off and delay the rates hike to later this year or early next year. This uncertainty spooked the markets across the board in the last couple of weeks and sent many investors looking for alternatives as protection against a slump. While volatility ETNs like the iPath S&P 500 VIX Short-Term Futures ETN ( VXX) are definitely popular choices in this type of an environment, these can face significant problems over long-time periods when the futures curve isn’t favorable. Meanwhile, precious metals such gold have been highly volatile as a slew of upbeat U.S. economic data pushed the greenback higher and started weighing on commodities across the spectrum. On the other hand, the global risk-off trade situation has resulted in a flight to safety to gold. Additionally, the returns from the other traditional safe haven – Treasury bonds – are also unstable at present as any positive news flow about the U.S. economy is negative for Treasury bonds. As such, there are very few options left for investors to hedge their portfolios. Fortunately, there is one solid option – the AdvisorShares Ranger Equity Bear ETF (NYSEARCA: HDGE ) – which has been doing well lately. Is This A Better Hedge in Current Turmoil? This ETF has been on the market since 2011, a difficult period for bears. Though it has been beaten down since its inception, it has delivered stellar performances in recent months, especially after the volatility levels picked up. This is especially true as HDGE gained nearly 5.5% in the trailing one-month period compared to the loss of about 7.2% for the SPDR S&P 500 Trust ETF (NYSEARCA: SPY ) . From a year-to-date look, the bear ETF has delivered returns of about 2% against 5.8% decline for SPY. Additionally, it has outperformed other popular hedge plays like the SPDR Gold Trust ETF (NYSEARCA: GLD ) and the iShares 20+ Year Treasury Bond ETF (NYSEARCA: TLT ) over the past six months, suggesting that this could be a better play for investors seeking an inversely correlated choice in today’s market. Inside HDGE The ETF is actively managed and seeks capital appreciation by taking short positions in a number of U.S. listed companies. The securities selected for the fund are based on the philosophy from Ranger Alternative Management, which utilizes a bottom-up, fundamental, research driven security selection process. In particular, the managers of this active fund will look to go short in firms with low earnings quality or aggressive accounting practices, as this might be a sign that the firms are attempting to hide deteriorating operations or are looking to boost EPS over the short term. Additionally, the managers will look to identify earnings-driven events that could be a catalyst for price declines such as downward earnings revisions or reduced forward guidance – the two factors that can signal trouble for a company. The fund has amassed $143.7 million in its asset base while trades in good volume of around 151,000 shares a day on average. However, it is a bit pricey when compared to other hedging products. Management fees come in at 1.5%, while a number of other costs like short interest expense, other expense, and acquired fund fees result in a net expense ratio of 2.92%. Bottom Line HDGE is a pretty innovative product that looks to give investors short exposure to the U.S. equity market. The focus on companies with weak earnings suggests that it is zeroing in on firms that are probably the most susceptible to sluggish market conditions, and thus could fall in bear markets or when the bull loses steam. So for investors ready to bear a higher expense ratio, this fund seems to be a great choice when markets are stumbling. Moreover, it appears to be a more direct hedge than the volatility, gold or Treasuries. Link to the original post on Zacks.com

4 (Or Is It 6?) Years In The Making

Volatility is back – there’s no getting around it, and we’ve got ourselves a nice little 10% correction from earlier this year. Last week, we saw big intra-day swings in the markets across the globe, and yesterday, we saw more of the same, with the S&P 500 (NYSEARCA: SPY ) off nearly 3% at the end of the day and the international markets off further. (Of course, the US market was actually up last week, but who’s counting?) The past few weeks have struck many as a bit of a shock, in large part because it has been some time since we’ve had really any volatility in the markets at all. The VIX (S&P 500 volatility) has spiked back to levels we haven’t seen since late 2011: (click to enlarge) But we still pale in comparison to the huge swings in 2008 and 2009: (click to enlarge) The primary issue is that we got comfortable. Really comfortable. I talked about this earlier – when we were fat and happy and too cozy in our calm markets to be bothered to remember what markets do on a regular basis. I see the irony in my post: “I don’t know what the catalyst will be. More aggressive Fed tapering? Global unrest? An unseen recession? Political turmoil? War? Most likely it will be something none of us saw coming – that is how these things usually work out.” Last year, not too many people said that we’d be getting a correction because of fears of a Chinese economic slowdown or because the anticipated-for-five-years-now Fed rate hike was finally (maybe) coming around the corner. I certainly didn’t. The only thing you should be thinking with these kind of short-term corrections is “This is what stocks do.” Put it on a post-it on the bathroom mirror or on the back of your phone or the side of your monitor or wherever you need the reminder. Stocks go down! Sometimes they do it quickly (see November 2008-March 2009), and sometimes it takes quite a while (see 2000-2002). Sometimes they go down a little (do you even remember the decline in 2011?), and sometimes they go down a lot. Sometimes it’s because of a recession, and sometimes it’s not. Every time someone you’ve never heard of will get credit for “predicting it,” and every time someone who has been bearish for the last 20 years will revel in their brief vindication. Each and every time, you will have an opportunity to decide how you will respond. Are you going to stare at the market every day? Are you going to anchor on what your account value was three months ago and bemoan your “losses?” Are you going to find some market commentator who told you he saw this coming and now know exactly what you should do next? Here’s what you should probably do when stocks go down: Nothing. Boring advice, I know. But usually, you should do nothing. Sometimes there’s an opportunity to take some tax losses. Sometimes it will warrant rebalancing (though rarely upon a 10% correction, depending on your rebalancing rules). Most of the time, you’re going to do nothing. We’re not good at doing nothing (more on that later), but give it a try. Go outside or read a good book and tell yourself “This is what stocks do,” and do nothing.