Long Term Financial Strategy - Part I
Whats the Technique?
For any Strategy or Technique to work we need discipline and need to abide by certain rules.
We follow these rules:
Lets use an example and see how it applies to Long Term Savings:
We follow these rules:
- Capital preservation - Safety is most important
- Grow capital at faster rate - Vehicle selection is crucial
- Avoid financial crash - Avoid pitfalls and wrong turns
Lets use an example and see how it applies to Long Term Savings:
I want to go from point A to point B
I want to reach safely
I need to choose right mode of transportation which is safe yet fast to take me from Point A to Point B
I need to avoid major accident or get out of my vehicle before it runs out of fuel or avoid taking wrong turn
- I want to grow my long term savings consistently and achieve my target
I want to reach safely
- I need to invest in safe financial instruments
I need to choose right mode of transportation which is safe yet fast to take me from Point A to Point B
- I need to choose right Mutual Funds, which can provide maximum returns
I need to avoid major accident or get out of my vehicle before it runs out of fuel or avoid taking wrong turn
- I need to avoid financial crisis or any down turns in the financial markets or getting in at the wrong time
BdIAS (Breadth driven Investment Allocation Strategy) - Momentum based portfolio allocation with Market Timing
Typically, our 401K accounts or Brokers that offer NLF (No Load Funds) Mutual Funds or No Transaction Fee ETFs, have several restrictions such as we cannot trade frequently, should hold for at least 15 or 30 days, etc. With such limited choices and such restrictions, how do we maximize our returns and more importantly stay out of the markets when it takes a tumble. We would like to capture big moves in the market but certainly want to avoid market crash & big draw downs.
So we identify which Funds in our limited choices would be probable best performers when we get the market entry signal and move out of these funds when we get the market exit signal or when our chosen fund is not among the best performing funds.
Really!!! Can we identify funds (which might be the best performers in future) ahead of time!!!
Market Timing or Market Signal: (Entry & Exit Signals)
Based on breadth analysis (predicts the strength of the market) in this case BPNYA (NYSE Bullish Percent Index), we performed an analysis in comparison with NYSE Index for last 20 years (1990-2000 & 2000-2011) and came up with set of rules which will help an average person to understand when they should enter the market and when they should exit the market or in this case enter/exit Funds. You can also follow our blog for current market comments.
Historical Analysis Synopsis:
Based on historical analysis and signal generated using BPNYA to enter and exit NYSE Index
Remember, past performance is not guarantee of future performance, all we are trying to do is have the "probability of winning" (odds of winning) in our favor.
So we identify which Funds in our limited choices would be probable best performers when we get the market entry signal and move out of these funds when we get the market exit signal or when our chosen fund is not among the best performing funds.
Really!!! Can we identify funds (which might be the best performers in future) ahead of time!!!
- Remember, we are ONLY trying to identify funds whose probability of performing in future is higher
- We identify funds based on relative strength (closing prices of a recent trading period)
- e.g. If I have to bet on a horse in derby (after the race starts) after 1st hundred feet then which horse will you pick? Certainly the one running fast reaching the 100 feet mark, Isn't it!!! We apply similar logic to pick our funds.
Market Timing or Market Signal: (Entry & Exit Signals)
Based on breadth analysis (predicts the strength of the market) in this case BPNYA (NYSE Bullish Percent Index), we performed an analysis in comparison with NYSE Index for last 20 years (1990-2000 & 2000-2011) and came up with set of rules which will help an average person to understand when they should enter the market and when they should exit the market or in this case enter/exit Funds. You can also follow our blog for current market comments.
Historical Analysis Synopsis:
Based on historical analysis and signal generated using BPNYA to enter and exit NYSE Index
- Avoided all major financial crash or down turns
- Maximum loss was 4% during any down market
- Doubled the money in 1st seven years during 1990-2000 & 2000-2010
- 1990-2000: If $1000 was invested in NYSE then by end of the decade it was 150% = $2500+
- 2000-2011: If $1000 was invested in NYSE then by end of the decade it was 200% = $3000+
Remember, past performance is not guarantee of future performance, all we are trying to do is have the "probability of winning" (odds of winning) in our favor.
BPNYA Historical Analysis.xls | |
File Size: | 59 kb |
File Type: | xls |