Advanced Strategies & various techniques
Do we really need additional strategies!!!
We assume that you have read through our technique explained under "Long Term Strategy". The strategy will work great on 401K/HSA/College Funds where we have very limited (selected Mutual Funds anywhere from 10-30) choices. But what about Traditional IRA or Roth IRA we may have with a brokerage firm! We may also have a regular investment account which we use as long term trading account. Typical brokerage firms allows us to trade all kinds of financial instruments (such as stocks, options, ETFs, Mutual Funds, Bonds, etc.). Unless we have extensive knowledge about financial instruments its very hard to invest in right type of investment. We will look at various techniques to identify which financial instruments to choose for a safe investment style.
How long we stay in Money Market fund!!!
When market is going down (market correction or bear market) then how should we choose our investments. In our base strategy for 401K, we stated that we should move our money to money market fund to avoid losses by being invested in other funds. So does it mean that if market correction continues for 6 months/1 year then we should keep our money in Money Market Fund! Not really! We can implement a technique to use bear market to our advantage and choose right funds as a safe investment.
What if we want to avoid trading fees in our Traditional IRA/Roth IRA/Regular Long Term investment accounts! Can we really avoid those trading fees?
YES, we can. Brokerage firms like Fidelity, Ameritrade, Scwab, etc. offer "No Transaction Fee" also known as "Commission Free" ETFs. You can check out the following list as an example:
Now before we apply our strategy, we need to understand some crucial financial basics -
Bond prices move inversely to interest rates
Relationship between Bonds and Stock
So what did we learn so far!!!
During economic downturn, stock prices peak due to overenthusiastic expectations for stock profits and investors prefer strong bond credits
In short, during market volatility or uncertain period, Bonds are more attractive and during stable or growth markets, Stocks are more attractive
I am Confused!!!
Don't worry, if you are confused then go through above information one more time. Remember, you only need to understand at high level without going into too much details. But the understanding of above principles is crucial without which you will not be able to understand our advance strategy.
How can we exploit this relationship between Bonds & Stock Market to our advantage!!!
How long we stay in Money Market fund!!!
When market is going down (market correction or bear market) then how should we choose our investments. In our base strategy for 401K, we stated that we should move our money to money market fund to avoid losses by being invested in other funds. So does it mean that if market correction continues for 6 months/1 year then we should keep our money in Money Market Fund! Not really! We can implement a technique to use bear market to our advantage and choose right funds as a safe investment.
What if we want to avoid trading fees in our Traditional IRA/Roth IRA/Regular Long Term investment accounts! Can we really avoid those trading fees?
YES, we can. Brokerage firms like Fidelity, Ameritrade, Scwab, etc. offer "No Transaction Fee" also known as "Commission Free" ETFs. You can check out the following list as an example:
Now before we apply our strategy, we need to understand some crucial financial basics -
Bond prices move inversely to interest rates
- Understanding Bond Prices and Interest Rates
- Why do interest rates tend to have an inverse relationship with bond prices?
Relationship between Bonds and Stock
- Stocks Vs. Bond Interest Rates
- Why Don't Bonds & Stocks Move Together?
- The Relationship Between Stock Prices and Bond Prices
- Courting Stocks and Bonds
So what did we learn so far!!!
- Bonds are inversely related to Interest Rates -
- Bonds and Stocks have very interesting relationship -
During economic downturn, stock prices peak due to overenthusiastic expectations for stock profits and investors prefer strong bond credits
In short, during market volatility or uncertain period, Bonds are more attractive and during stable or growth markets, Stocks are more attractive
I am Confused!!!
Don't worry, if you are confused then go through above information one more time. Remember, you only need to understand at high level without going into too much details. But the understanding of above principles is crucial without which you will not be able to understand our advance strategy.
How can we exploit this relationship between Bonds & Stock Market to our advantage!!!