I’m going to tell you a secret that Wall Street doesn’t want you to know. Billions of dollars are at stake in business owners’ and entrepreneurs’ portfolios across the country. And, as an entrepreneur myself, I’m going to tell you the WHOLE secret. I’m not making money on this. Let me set the scene:
The Back Story
Have you resigned yourself to poor performance in your investment portfolio? Or to the likelihood of future negative surprises in your portfolio value? Do you pay someone else 1% or more every year to manage your money, because it’s too much hassle or because you feel unqualified or lack confidence in your ability to pick good investments?
Then read this. It will change your life – especially how you think about investing.
There is an easy way to manage your investment portfolio in just minutes once-a-month, while nearly eliminating the possibility of portfolio losses and also averaging 11%+ annual returns in the long run (based on 37 years of back testing). It sounds TGTBT, but it is not. It is very real. This investment methodology was thoroughly documented in an academic study published in The Journal of Wealth Management.
I’m not selling anything – everything I discuss today is available for free and anonymously, including ALL you need to know to take control of your investments and face the future with confidence. As an entrepreneur myself (www.datalyticsllc.com), I feel compelled to share this with the community.
Here’s a graph showing you the growth of $10,000 over the last 11 years:
The Blue Line
If you held only a S&P 500 index fund in your portfolio from 2000-2010, you would have returns similar to the blue line, which shows how $10,000 in 2000 grew into about $11,000 over the subsequent 10 years. Yuck.
The Gold Line
Next, if you held a diversified portfolio equally divided into 5 buckets: S&P 500 index fund, GSCI commodities index fund, NAREIT real estate index fund, EAFE global equity index fund, and US 10-year Treasury bonds, you would have experienced a return like the gold or brown line – your $10,000 grew into about $17,500. Not bad.
The Green Line
Lastly, if you had invested in the same diversified portfolio, but rather than holding your investments the whole time, you used a simple, proven buy/sell strategy, you would have experienced a return like the green line – growing your $10,000 into almost $25,000 over the last decade. The primary reason for this is that the method avoided the losing markets of 2000-2002 and 2008. Pretty cool!
How it Works
Now that I have your attention, what is this buy/sell strategy? It is very simple and mathematical – no subjective human judgment involved. At the end of each month, you evaluate the current price of each of the 5 investments against the 10-month (214-day) simple moving average for that investment. This average is readily available in Yahoo! Finance charts or just about any discount brokerage trading platform (i.e., Ameritrade, E-trade, Scottrade, etc). If the current price is above the average, we buy or keep that investment. If the current price is below the average, we sell or avoid that investment, and keep that “bucket” of money in cash or money market funds until the current price goes back above the 10-month average, then we buy back in.
It’s that easy. Look at your investments once a month — NOT more often — and trade (if needed) based on the current price compared to the average price of the last 10 months. From 1973 through 2010, this strategy has only lost money in 1 year – 2008 – and it lost less than 1% in that year – one of the worst years on record for most markets. The average annual rate of return throughout those 37 years is north of 11%.
If this sounds good but you want it even easier, I provide monthly trade instructions on my blog. You don’t have to monitor the investment charts or anything – just watch my blog
at the end of each month and I’ll tell you exactly what to trade (if anything).
Why I Like It
One of the biggest reasons I like this strategy is that it provides a discipline for getting out of falling markets, protecting our assets, and preventing us from “buying and holding” all the way to the bottom like many people did in 2008. The other reason is that it’s just easy. I’m sure there are other methods out there to make more money and limit risk. But this has got to be one of the easiest and least time-consuming. I like it because regular people can use it to feel confident about managing their own investments.
I invite discussion from all readers! May you sleep easy at night and spend less time worrying about your portfolio!