Stocknectar.Org Hedge Investing Information

The EarthLast major revision: June 2015

Stocknectar.Org is all about free information for improving investment safety. The basic essentials are right here on this page.

(Stocknectar.Org receives no approval nor payment from any suggested brokerage or ETF. This is only general information, not financial advice. Please modify any suggestions according to your personal situation. If you do not fully understand this information, please seek professional advice.)

A. The Six Noble Suggestions For Financial Survival.

  1. You must be frugal. If you never save money, you can never be safe.
  2. You must invest. Investing is risky. However, if you do not invest, you will definitely lose half your savings to inflation. To reduce the risks, follow the remainder of these rules.
  3. Never use “quasi-safe” investments. (Annuities, CD’s, corporate bonds, Covered Calls, etc.)
  4. Invest only in broad-based ETF mutual funds. (Not specialized funds. Not individual stocks.)
  5. Always maintain emergency Stop orders while paying no more than $5 per order.
  6. Always maintain 40% of your money in two hedge positions: 20% in PHDG and 20% in short-term US Treasury TIPS.

 

B. In-depth explanation for financial survival.

  1. To become financially secure, you must always invest 20% or 30% or ideally 50% of every paycheck. (For details see section D-1 below.)
  2. Choose only reputable online brokers with small fees. If your savings is less than US$500,000, then avoid paying more than $5 per trade. If your savings is less than $100,000, then avoid paying more than $1 per trade. If your savings is less than $10,000, then seek out brokers with no-fee offers for good ETF investments. It is then possible to invest effectively with as little as US$500.
  3. vbk-phdg-2011-2014hInvest primarily in broad-based equity ETFs such as SPY, VBK, GURU and XRT. Avoid individual stocks. Avoid highly specialized or non-US ETFs.
  4. Maintain “Trailing Stop-sell orders” that will sell each equity ETF at a certain percentage of loss between -5% and -20%. Adjust each Stop so that it usually is triggered about once a month. Re-invest as soon as an ETF trends slightly upward. Of course, an upward trend will often turn downward and vice-versa. Stop orders usually will not increase long-term gains nor reduce long-term losses.  However, car brakes similarly are not always reliable. Nonetheless, Stop orders and car brakes are both basic safety precautions against the most dangerous conditions.
  5. Also consider always holding 20% of all invested money in PHDG, a “hedging ETF” which often gains value whenever most equities are losing value.
  6. Do not entrust large amounts of money in so-called FDIC-insured bank accounts or CD’s. It is much safer to buy short-term US Treasury TIPS, which are “inflation protected” and “backed by the full faith and credit of the US government.” Short-term TIPS can sometimes lose value slightly–but this is well worth the greater safety.
  7. It is especially foolish to “bet your life” on annuities or corporate bonds which ultimately depend on the solvency of a single corporation. At one time, GM or Enron or AIG might have been worthy of this level of trust. This is obviously not the situation today. Nor can we ever be certain whether Blackberry might suddenly be bankrupted by Apple or Apple might suddenly be bankrupted by Nokia. In spite of this, many well-respected investment professionals continue to suggest traditional corporate bond strategies. This might make some sense for multi-millionaires who are able to diversify more than usual. Otherwise however, annuities, corporate bonds and municipal bonds are substantially less safe than TIPS and do not offer substantially greater profits. These are like “wooden fire escapes” that might be safe when there is no crisis, but are clearly unsafe during a 2008-level crisis. You can achieve the same gain with much less risk by combining a large investment in short-term TIPS with a small investment in equity ETFs. There is no reason for quasi-safe investments.

B. Investment resources provided by Stocknectar.Org.

C. Offsite articles by Stocknectar staff.

D. Our investment philosophy.

sn-how-to-be-rich1. Consider not-spending. The true measure of wealth is not how much you earn, but how little is your proportion of spending to earnings. You can be wealthy right now–if you can simply find people whose income is half as much as yours and live as they do. Children should learn to place half their allowances in piggy banks and grownups should do similarly. If systematically investing 1/2 your salary is not feasible, try for 1/3 or at least 1/4. Immediately invest a portion of all income and then do not think of it as your money. Then eventually your investment income can become as large as your salary. If your grandparents had done this, then instead of living hand-to-mouth, you and your descendants might live in security while devoting their energies to helping out their grandchildren and favorite charities. Also, if millions of ordinary citizens always remain secure, then financial disasters will happen less often and be less severe. (This is the purpose of this free information provided by Stocknectar.Org.)

2. Never invest more than 1/5 of portfolio in a single company, municipality, sector or small country. The Enron scandal was not the first nor will it be the last company failure to devastate many families. Similarly, Singapore or Disney World might be good places to invest 1/5 of your savings but no more. In general, we would suggest to try to limit any individual liability to 1/10 or ideally 1/20 of total savings. (Also note that ETFs can hold dozens of stocks and therefore can be much safer than individual stocks. For a list of suggested ETFs see Stocknectar.Org/ETF.)

3. Consider ¢entsible home ownership. The right home can make you, the wrong home can break you. The right home is easily affordable on a 15-year mortgage, close to work, has low tax and insurance rates, and includes a large two-door camper or a well-separated rental unit. If you or a relative fall on hard times, or if an elderly relative needs to live nearby, or if a young relative needs a separate space, or if you just need storage space–it is important to accommodate this at minimal cost and while not cramping your lifestyle. That done, home ownership is better than gold because you cannot live in a bar of gold.

4. Consider donating 1/1,000 of the value of your investments to Greenpeace each year. The current direction of the human race is obviously non-sustainable. Things could be different if only everyone paid 0.1% of the value of their investments towards supporting the free air, water and fish that sustain us. This is 1/10 of what many investors pay to a stock broker.

Comments are closed.