Best Do-It-Yourself Long-Short ETF Strategies (2015.06)

If you do not invest you will certainly lose 1/2 your savings to inflation. If you do invest you might lose 1/2 your savings in a stock market crash. To help resolve this dilemma, this page offers free suggestions for do-it-yourself long-short ETF investing whether you have $500 or $500,000.

(Stocknectar.Org receives no approval or payment from any suggested brokerage or ETF. Graphs courtesy of Finance.Yahoo.com. VEQTOR research courtesy of SixFigureInvesting.com. VQT performance has been used to represent PHDG performance, which follows the same VEQTOR protocol.)

Investors with more than $50,000: consider SN-SOS Security Optimized Saving. SN-SOS is best used with accounts larger than $50,000. SN-SOS, with and without autotrading, is explained at Stocknectar.org/autotrading.

Investors with $500 to $50,000: consider SN-DIY below. The SN-DIY strategy equally emphasizes gain and security–in a manner suitable for small do-it-yourself accounts. SN-DIY achieves this by combining hedge positions with medium-volatility and high-volatility positions, as follows.

short-term-TIPS-2003-20141. Hedge positions: SN-DIY invests about 25% in STPZ and VTIP. STPZ and VTIP are short-term TIPS ETFs. TIPS are both “inflation-protected” and “guaranteed by the full faith and credit of the US government.” The average trading value of short-term TIPS seldom gains or loses more than 2% annually.

SPY-XRT-GURU-FPX-VBK-XRT-2011.07-2015.072. Medium-volatility: SN-DIY invests about 50% in SPY and XRT. SPY holds all the stocks of the S&P 500 Index, which represents the average US-based stock market investment. XRT holds the S&P Retail Index. The S&P Retail Index has frequently outperformed the S&P 500. Although of course, past performance does not guarantee future performance. (Other good ETFs may be used instead if desired: FPX invests in IPO stocks, GURU copy-cats leading investors, VBK invests in leading small-cap stocks.)

VIX-based-derivative-ETFs-2011.07-2015.073. High-volatility: SN-DIY invests about 25% in ZIV. ZIV is a derivative-based ETF that consistently has experienced periods of both high-loss and high-gain. Of course, past performance does not guarantee future performance. Every investment also involves the possibility of asset collapse. Otherwise however–a small amount of high-volatility investing tends to energize a portfolio. Rebalancing causes some of the gains from high-gain periods to be moved to more stable investments before the high-loss periods. Conversely, adding money during high-loss periods potentially increases the gains of high-gain periods.

(Note. 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.)

SN-DIY-1 for $500 to $10,000.

  • Deposit 100% at OptionsHouse.com where per-trade fees are $5.
  • Invest 1/3 in SPY, 1/3 in ZIV, 1/3 in short-term TIPS (divided between STPZ and VTIP). Note that SN-DIY-1 has less than the usual number of SN-DIY positions. This is because the smaller the account, the greater the need to minimize trading fees.
  • Maintain “trailing stops” to sell ZIV and SPY if their value falls -10%. Rebuy either investment as soon as SPY shows a net gain over a one-week period–but only rebuy one investment per week. If both are eligible, then rebuy SPY first, and do not rebuy ZIV until SPY has had a second winning week. (If you do not know how to operate a “trailing stop” then contact the telephone support personnel of OptionsHouse.)

SN-DIY-2 for $10,000 to $50,000.

  • Deposit 100% at InteractiveBrokers.com where per-trade fees are usually $1.
  • Invest 25% in XRT, 25% in SPY, 25% in ZIV, 25% in short-term TIPS (divided between STPZ and VTIP).
  • Maintain Trailing Stop-sell orders at -10% for XRT, SPY and ZIV.
  • Check the account weekly. If any ETFs have sold, re-buy as soon as there is a net gain for the week. Only re-buy one ETF per week, and only if there was a net gain for the previous week, and in the following order of priority: SPY, XRT, ZIV.
  • (Optional security measure. If you only pay $1 per trade, you can increase security by temporarily purchasing 10% of account value in SGOL, GTU, IAU or PHYS whenever SPY, XRT or ZIV has been sold. SGOL, GTU, IAU and PHYS are high-volume, high-security gold bullion ETFs.)

Investors with more than $50,000: for the high-security strategy SN-SOS and also for fully-automatic trading see: Stocknecar.Org/autotrading.

Additional notes.

  • Our Planet EarthThe stock market cannot be predicted. All investments are affected by the general stock market. Therefore, if your investments are well-chosen, then as a general rule, the more often you remain invested the higher your average gains will be. Therefore, after a Stop-sell has been triggered, it is generally best to re-buy just as soon as you feel willing to do so. However, you must also expect often to be wrong. Stop-sell orders cannot be expected to remove ups-and-downs. Stop-sell orders are primarily a defense against a steady and extreme loss. The more that you use your car brakes, the safer your car, but the lower the average speed–and there is no such thing as total safety. Similarly, the more that you stop investing, the safer your investing, but the lower your average gains–and there is no such thing as total safety.
  • OptionsHouse.com currently has no minimum deposit and a per-trade fee of about $5. Therefore the above suggestions use Options House for investors with less than $10,000.
  • InteractiveBrokers.com usually charges about $1 per trade for most ETFs. The minimum initial deposit for most accounts is $10,000. Interactive Brokers is clearly the best broker for most investors with more than $10,000. (As of January 2015, IRA and some non-US accounts may be opened with as little as $5,000. People under 25 may open accounts with $3,000.)
  • Beware of no-fee trading offers. No-fee offers require either that you do not sell for 30 days, or that you pay $20 per trade for non-free ETFs, or that you deposit $50,000. The no-fee account that requires $50,000 was affiliated with a potential bankruptcy situation and does not have as good trading tools as Interactive Brokers. Therefore, even if you have $50,000, no-fee trading is not very practical.
  • Every investment involves some risk of permanent loss. This page only reports general suggestions. Please modify according to your personal goals and objectives.
  • Seek objective financial advice. There is probably a social service organization in your area that can provide free and objective financial planning. Ask around. Another possibility is a fee-based independent financial planner. (Not a broker-adviser.) One source is NAPFA.org.

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