Is it a Time for Caution in the Stock Market?

Posted on March 25, 2016March 25, 2016 by Joseph M. Brennan Jr.

In examining the three year chart of the S&P 500 index (SPX) there appears to be potential changes in the behavior of the SPX over the past few months as indicated in Figure 1 below.

Figure 1: Annotated SPX chart (SPX chart provided courtesy of stockcharts.com)

For about the first two and a half years of this three year chart the SPX was in a strong uptrend as indicated by the green line in Figure 1 above. This period of time was characterized by what I will refer to as “checkmark” shaped recoveries in which drops from previous highs were followed by higher highs (see blue checkmarks above the green uptrend line).

Since the Summer months of 2015, however, a different pattern appears to be emerging suggesting that the SPX might be in the beginning stages of a downtrend as indicated by the red line in Figure 1 above. I ponder whether the future might be characterized by “reverse checkmark” shaped recoveries in which drops from previous highs are followed by lower highs. We might already be seeing hints of this (see the two blue reverse checkmarks below the red downtrend line).

If the red downtrend line above is confirmed we could see a drop in the SPX of 10% or more from where it is today. Thus, we might be entering a period of time where we’ll start seeing the lower highs and lower lows which are characteristic of downtrends. As such, it might be wise to proceed cautiously and to manage your risk. I’ve written several articles on how to effectively manage risk (click on “Financial Planning, Management, and Investing Related Posts” on the sidebar to the right or below, depending upon which device you are using, for helpful tips on managing risk and how to become a solid investor overall).

Those who are interested can follow my stock market activities here.

You can also follow me on twitter if you like at Joseph M Brennan Jr @ Brighter Days Life Coaching.

Powerful Risk Management Strategies For Dividend Stocks

Posted on February 21, 2015April 18, 2015 by Joseph M. Brennan Jr.

This article informs how to effectively manage risk for stocks to include those which regularly pay dividends. For those of you who have been following my stock market investing activities you know that I have been recently buying dividend stocks to include Schnitzer Steel (SCHN) and AGL Resources (GAS). Dividend stocks offer unique opportunities to realize gains due to quarterly, or sometimes even monthly, dividend payments as well as the potential appreciation in the stock prices. This combination can allow you to patiently execute your disciplined strategies and improve your chances of realizing significant gains over timte. This can happen even when the stocks you are initially holding significantly decline. In fact, I often earn greater gains overall when the stocks that I initially buy decline, because I tend to grow my position over time through price averaging such that when the stocks I’m holding stage a rally a larger profit is earned across my overall investment accounts.

Here’s an example of some of the strategies that I employ which work fairly well; especially for stocks which pay a dividend. Imagine that you initially buy 200 shares of XYZ stock at a notional price of $10.00 which pays an annual dividend of 5%. The very next step that I now take for all stocks that I initially buy is to decide “up front” what I reasonably consider to be a substantial gain in the stock price. This can vary depending on the nature of the stock, but I usually target a 5%-10% gain as a reasonable substantial gain for many of the stocks that I’ve held although for those which tend to be highly volatile in nature I might try to get 15% or 20%. Let’s assume that we consider a 10% gain to be a reasonable expectation for a substantial gain in the XYZ stock. I next proceed with immediately putting in a sell order for the shares I initially bought at a sale price of $11.00 (10% gain from the $10.00 price that I initially bought them at). If the price ever touches $11.00 the shares would then be immediately sold for this “substantial” gain. This “up front” strategy is something that I use for all stocks that I buy, not just dividend stocks. However, here is a demonstration of an additional strategy that I now employ for dividend stocks: If the XYZ stock price declines by twice as much as the annual dividend (a 10% decline in this example since the notional XYZ stock paid a 5% dividend) then I price average into it by doubling down on the stock at that point in time. Thus, the initial 10% loss would be immediately transformed into a 5% loss. A loss which could notionally be completely erased in a year’s time by the dividend payouts alone even if the stock does not appreciate in value within that timeframe. In addition, for the new set of shares I purchased, I would again decide “up front” what I considered to be a substantial gain (e.g., 10% gain) and proceed with immediately putting in a sell order for this set of shares at the 10% gain price to immediately cash in on this should the stock ever touch this price. If the XYZ stock declines another 5% (10% loss total overall) then I would again double down on the stock to transform that 10% loss into a 5% loss which could again potentially be completely mitigated solely by the dividend payouts in a years time and once again decide “up front” what I considered to be a substantial gain for these new shares (e.g., 10% gain) and proceed with putting in a sell order for these shares at the 10% gain price. Even if the XYZ stock experiences a series of back-to-back significant declines you can grow your position and posture yourself for potential future gains, because declining stocks generally do not go down in a straight line. They tend to rise and fall over time. So chances are that if you are patient, and stick with your strategy, you will realize substantial gains due to the combined effect of the dividend payments and the stock price appreciation. This combined effect can significantly reduce your risk and increase your chances of success. Typically, when employing these strategies, I target stocks which pay between 3% and 5% in annual dividends. Anything less does not buy you much in terms of managing risk via these strategies and anything above is typically unsustainable and likely to result in future dividend cuts or suspensions unless the investments you are targeting historically have paid higher dividends such as some Real Estate Investment Trusts (REITs) and high yield bond funds.

The above strategies do not consider the tax implications of the dividends or capital gains which might be earned so you might want to make adjustments if you would like to factor these in. In addition, there is always the chance that dividend payouts could be reduced or suspended, however, frequently dividends are increased over time. In either case, the above strategies work fairly well as a starting point, but you should periodically evaluate how well your strategies are working for you towards supporting your investment goals and make adjustments over time to improve the effectiveness of the strategies that you employ. I have developed and employed many investment strategies over the years, some of which I have written about in these articles, and frequently have evaluated these strategies and made adjustments to them over time such that they better supported my investment needs. I encourage you to do the same.

The strategies that I have presented in this article will allow you to take advantage of the natural volatile nature of stocks such that even those which significantly decline over time can result in minimal losses or perhaps even substantial gains. Often, these strategies will result in a series of buys on significant declines and a series of sells on significant rallies as well as dividend payouts for the shares that you hold the night immediately preceding the established ex-dividend dates. Selling a portion of your gains all along the way allows you to use the cash that you raise to buy additional shares should the stocks you are holding reverse and decline if the risk-reward for these stocks remain favorable in nature.

Substantial gains can often be realized using these strategies, if you are patient, because lagging stocks frequently become leading stocks over time and the dividend payments from dividend stocks can allow you to receive incremental gains all along the way while you patiently wait for the stock price appreciation to happen. Developing and refining strategies “up front”, such as those that I have discussed in this article, is critical to your success as an investor. Doing this well can transform you from being an emotional investor into a disciplined one who realizes steady and consistent success over time. I have developed several solid strategies for clients that I work with depending on the client’s risk category, the type and nature of the stocks being considered, the investing environment at the time, and the risk-reward indicators that I generally look at. Feel free to contact me if you’d like to find out more.

This article informs how to effectively manage risk for stocks through pre-planning and effective techniques and strategies to include stocks which regularly pay dividends; even when the stocks you are holding significantly decline. Part of being a solid investor is recognizing opportunities when you see them and promptly capitalizing on them when the risk-reward of securities you are tracking become highly favorable (as a buyer) or highly unfavorable (as a potential seller or short seller) in nature. By periodically rotating out of investments which become less favorable and into investment opportunities which become more favorable in nature you will realize consistent investment success over time. You won’t make winning investments all of the time, but the point is to use strategies and techniques which allow you to make winning investments for much of the time. I can help in these regards.

For those that did not know, I generally perform life coaching and training services in two primary areas: 1) Personal and Professional Improvement, Development, and Growth, and 2) Financial Planning, Management, and Investing. As such, I generally alternate the articles that I write via my blogs between these two topic areas. This particular article is associated with the second area that I life coach in. So if you do not have much interest in financial planning, management, and investing, rest assured that one of the next articles that I write will be in the area that you might have greater interest in; the personal and professional improvement, development, and growth area. You can also follow me on Twitter if you like at: Joseph M Brennan Jr @ BrighterDaysLC

Joseph M. Brennan Jr.
CEO/Life Coach – Brighter Days Life Coaching
“Your Brighter Days Life Coach for Life”

Make a Bad Day Better
Make a Good Day Better
Create a Brighter Life

The Cool, Calm, and Collected Investor: How To Minimize Losses and Even Achieve Gains When Investments Sharply Decline

Posted on February 7, 2015April 18, 2015 by Joseph M. Brennan Jr.

This article informs how to effectively manage risk by minimizing losses and transforming these losses into gains over time when investments sharply decline. For those of you who have been following my stock market investing activities you know that I have been actively buying and selling shares of an oil company called Seadrill (SDRL) over the past couple of months. At the recent bottom, a couple of weeks ago, this stock had lost about 43% since I first started buying it back in late November, but I was able to transform this loss into a substantial gain. Patience, discipline, and the use of effective techniques are the keys to success when stocks that you initially buy significantly decline. Effective techniques that I used in this particular example were price averaging and the periodic selling of technical “bounces” by taking advantage of the natural volatility of stocks. These techniques can work well, because stocks generally do not go down in a straight line. They tend to rise and fall over time.

Here’s a sample scenario which demonstrates how to effectively use these techniques. Imagine that you buy 200 shares of SDRL at a notional price of $10.00 ($2,000 invested total). A week later the stock falls to $9.00 which is a 10% loss. At that point you decide to invest another $2,000 and buy 222 shares of SDRL resulting in an average price per share of $9.48 ($4,000 total invested/422 total shares = $9.48 per share). This technique demonstrates the concept of price averaging.

Upon buying the second set of shares (the 222 shares of SDRL at $9.00 per share in this case) you can immediately place a sell order for these shares for whatever you consider to be a substantial gain for these particular shares. Let’s say, for illustration purposes, that you decide on a 10% gain or a price of $9.90. You would then monitor the stock and if it approaches the 10% gain for those shares then you might either manually execute the sell order prior to reaching the $9.90 price or wait until it is automatically triggered at the $9.90 price. If it sells at 9.90 then you will have received $2,198 for the $2,000 invested in these shares. If the stock drops again to, say, $9.00 you might again buy the shares at this price. In this case, you might invest another $2,000 (and retain the remaining $198 as your profit) buying 222 shares which once again results in an average price per share of $9.48. And you can continue this process throughout the ups and downs of stock prices by taking advantage of the natural volatile nature of stocks such that even those that decline significantly over time can result in you experiencing minimal losses or perhaps even realizing some substantial gains as I was able to do with the SDRL stock over the past couple of months. Often, this strategy will result in a series of buys on significant declines and a series of sells on significant rallies. However, by operating in the fashion described above you will only be selling each set of shares whenever they experience significant gains which will, at worst, minimize your losses or, at best, generate significant gains in time.

One of the keys to successful investing involves being prepared in case things do not turn out the way you might initially expect such that you can capitalize either way that things might go. The above strategy allowed me transform an initial 43% loss into a substantial gain. A substantial gain is often likely if you are patient, because, in the investment world, frequently lagging stocks become leading stocks, over time, and so long as the risk-reward indicators remain favorable in nature it makes sense to continue buying and/or holding shares of these stocks.

Selling a portion of your gains all along the way allows you to use the cash you raise to buy additional shares should the stocks you are holding reverse and begin to decline. Because in the world of investing nothing is ever certain. This is why developing and refining strategies “up front” is so critical to success. Doing this can transform you from being an emotional investor into a disciplined one who realizes steady and consistent success over time. I have solid risk management strategies that I have developed for various investment types and investing environments, for the clients that I work with, so feel free to contact me if you’d like to find out more.

This article informs how to make the most of investment situations through pre-planning and effective techniques and strategies; even when the stocks you are holding significantly decline. Part of being a solid investor is recognizing opportunities when you see them and promptly capitalizing on them when the risk-reward of securities you are tracking become highly favorable (as a buyer) or highly unfavorable (as a potential seller or short seller) in nature. By periodically rotating out of investments which become less favorable and into investment opportunities which become more favorable in nature you will realize consistent investment success over time. You won’t make winning investments all of the time, but the point is to use strategies and techniques which allow you to make winning investments for much of the time. I can help in these regards.

Joseph M. Brennan Jr.
CEO/Life Coach – Brighter Days Life Coaching
“Your Brighter Days Life Coach for Life”

Make a Bad Day Better
Make a Good Day Better
Create a Brighter Life

Key Investment Results and Findings From 2014 and Refinements to Investment Strategies and Techniques

Posted on January 2, 2015December 23, 2015 by Joseph M. Brennan Jr.

This article offers a reflection on key investment related results and findings from 2014 and informs how to make the most of investment situations through pre-planning and the development and refinement of investment strategies and techniques.

So… The results are now officially in. I was able to beat each of the major stock market indexes in 2014. My personal investment account earned 20.8% while my much smaller Roth IRA account (which is subject to more stringent rules, such as no margin and more stringent buying and selling rules, making investing a bit more challenging) earned 9.0%. Between the two I collectively earned a 19.2% gain, which is nearly a 3 year gain on average, and was over five times the Russell 2000 index’s year end gain of 3.6%, nearly triple the Dow Jones Industrial Average index’s year end gain of 7.5%, and almost double the S&P 500 index’s gain of 11.4%. So, overall, this was a highly successful investment year for me. Especially since 85% of actively managed fund managers lagged the benchmark indexes they were seeking to beat in 2014 making it their worst year in 30 years.

The key to my investment success this past year was strong discipline and the active assessment and refinement of my investment strategies and techniques. Early in the year my investment account was down 33% due to some stocks which continuously declined, but I kept buying into them, because the risk-reward indicators that I generally look at were highly favorable in nature and often lagging stocks eventually become leading stocks. So I patiently waited for the rebound to happen and sure enough it did. Years ago, as a young investor, I might have made the classic investing mistake by panicking and selling at the bottom; fully realizing the 33% loss in the process. However, strong discipline allowed me to continue executing my investment strategies. And it takes a lot of discipline to keep buying into stocks which sharply decline in value and to patiently wait for rebounds to happen.

Once I was able to fully recover from my early losses, I made adjustments to my investment strategies and techniques to better align them with my desired investment risks. I made adjustments to my risk-reward thresholds as well as my investment trade execution amounts. These refinements allowed me to greatly capitalize on the mid September-to-mid October market slump where the overall stock market lost nearly 10% and then rapidly gained over 11% over a period of about 3 weeks or so. During that period of time my investment account lost 6%, but then rose 22% over the three week recovery period; beating the S&P 500 Index both on the way down and on the way up. So my refined investment strategies and techniques allowed me experience less downside as well as greater upside with respect to the overall S&P 500 Index which indicates that the refinements I made were fairly effective overall.

One key message here is that it is important to maintain a sense of discipline by defining your investment strategies and techniques “up front” and executing these accordingly. Solid investment strategies and techniques need to define what actions you will take either way things might go: whether the stocks you purchase rise or whether they fall. Because, in the investment world, things do not always play out the way you might initially expect, but either way things go your investment strategies and techniques should allow you to frequently capitalize. Mine do. Another key message here is to always seek to refine your investment strategies and techniques so that you continue to maximize the benefit you get out of these. When I experienced the 33% loss early in 2014, I came to realize that my investment strategies and techniques were a bit too risky for my purposes, so I made refinements to these. Refinements which allowed me to greatly capitalize later in the year. I’ve made several refinements to my investment techniques and strategies over the years. The investment techniques and strategies that I use today look nothing like those that I used during my early investment days. So make it a regular practice to evaluate and refine the investment techniques and strategies that you use over time.

This article informs how to make the most of investment situations through pre-planning and the development and refinement of investment strategies and techniques. Part of being a solid investor involves effectively performing pre-planning and executing in accordance with your pre-defined strategies and techniques in a disciplined fashion; taking actions to exit investments which become unfavorable in nature (as a seller) and capitalizing on new investment opportunities which become favorable in nature (as a buyer). By periodically rotating out of investments which become less favorable and into investment opportunities which become more favorable in nature you will realize consistent investment success over time. You won’t make winning investments all of the time, but the point is to use strategies and techniques which allow you to make winning investments for much of the time. Being a solid investor also involves recognizing opportunities when you see them and promptly capitalizing on them when the risk-reward of securities you are tracking become highly favorable (as a buyer) or highly unfavorable (as a potential seller or short seller) in nature. You always want to be thinking several “moves” ahead of the stock market and have an idea of what you might do at every turn. Solid investment strategies and techniques will allow you to do this such that you become a disciplined investor who realizes consistent success over time instead of being an emotional investor who frequently loses money and misses out on key opportunities. I can work with you to help you determine which techniques and strategies might be the most appropriate for you to use for your particular investment situations, risk categories, and time horizons.

Please contact me if you need any assistance with any of your financial planning, management, and/or investing needs as this is one of the areas that I actively perform life coaching and training in. Also feel free to click on “Financial Planning, Management, and Investing Related Posts” to the sidebar on the right or below (depending upon which device you are using to view this article) for helpful tips on how to become a solid investor to include some of the topics that I have alluded to in this article such as pre-planning, strategy development, and risk management. These articles provide helpful tips on how to become a solid investor so read through some of these if you think they might be helpful to you or to others in your life. In addition, in case some of you would like to follow along, here is where I regularly post about my stock market activities. So feel free to visit this page if you would like to follow what I’m doing in the stock market at any given time. Some people like to monitor my investment activities and if stocks that I purchase on any given day decline then they seek to buy and if stocks that they own that I sell on any given day rise then they seek to sell since, in either case, they would have gotten a better deal than I. So feel free to follow along and execute your investment strategies accordingly if you so desire.

For those that do not know, I perform life coaching and training services in two primary areas: 1) Personal and Professional Improvement, Development, and Growth, and 2) Financial Planning, Management, and Investing. As such, I generally alternate the articles that I write via my blogs between these two topic areas. This particular article is associated with the second area that I life coach in. So if you don’t have much interest in financial planning, management, and investing rest assured that soon I will write an article which will be in the area that you might have greater interest in; the personal and professional improvement, development, and growth area. You can also follow me on Twitter if you like at: Joseph M Brennan Jr @ BrighterDaysLC

Please contact me if you, or someone else in your life, could use some assistance with either of the two primary areas that I actively perform life coaching in. You can learn more about each of these areas by clicking on the menu, footer, and sidebar items.

Joseph M. Brennan Jr.
CEO/Life Coach – Brighter Days Life Coaching
“Your Brighter Days Life Coach for Life”

Make a Bad Day Better
Make a Good Day Better
Create a Brighter Life

Pre-Planned Investment Strategies For Investment Success

Posted on December 19, 2014April 18, 2015 by Joseph M. Brennan Jr.

This article informs how to make the most of investment situations through pre-planning and effective strategies. For those of you who have been following my stock market investing activities you know that I have been actively buying shares of an oil company called Seadrill (SDRL) over the past several weeks. To put things into perspective, regarding the SDRL stock, at the recent bottom a couple of days ago, this stock had lost about 40% since I started buying it, but my overall loss due to price averaging into was about 12% at that point in time (the stock has dropped about 74% since the end of June). However, no matter what happened from that point in time forward, I had a plan. If SDRL continued falling, I would continue buying it into the year end, until I could buy no more, and then I would sell the entire stake and buy stock in a different oil company which paid a nice dividend (COP, TOT, and BP currently pay dividends between 4.5% and 7.0% per year). The reason I planned to do this, given the losses continued, was that I could recoup 28% of my losses due to the tax write-off since I am effectively in the 28% tax bracket. I could realize this tax write-off so long as I sold the stock before the end of the year and I did not buy the same stock for 30 days which is why I was targeting different companies. Via this 28% effective gain, plus the 4.5%-7.0% dividend anticipated for the coming year, I would have largely recovered from my losses even if the value of the new stock did not appreciate over the coming year. However, there is a significant probability that oil stocks will appreciate significantly in the coming year, because often, in the world of investing, lagging stocks become leading stocks.

However, in this particular case, as luck would have it, the SDRL stock reversed and surged higher in a four day rally. As a result, my 12% loss on Monday transformed into a 10% gain as of today and I began selling this stock to realize these gains. To date I have sold about a third of my SDRL shares. The reason why I decided to do this was, because this will allow me to use this cash to buy additional shares should the stock reverse again and begin to decline further.

You can rest assured, however, that either way things go in the future I have a plan. If SDRL continues rising significantly I’ll sell more shares to continue price averaging out of it, but if it falls significantly then I’ll look to buy more shares. Part of being a solid investor is recognizing opportunities when you see them and promptly capitalizing on them when the risk-reward of securities you are tracking become highly favorable (as a buyer) or highly unfavorable (as a potential seller or short seller) in nature.

You always want to be thinking several “moves” ahead of the stock market and have an idea of what you might do at every turn. Doing this will allow you to become a disciplined investor who realizes consistent success over time instead of being an emotional investor who frequently loses money and misses out on key opportunities. I do not care what your strategy is, just have one no matter how things go. Some strategies work better than others depending on what investing environment you are in, but having no strategy at all is a sure recipe for failure. I can help you to determine which strategies might be the most appropriate for you to use for your particular investment situations and time horizons.

This article informs how to make the most of investment situations through pre-planning and effective strategies. Part of being a solid investor involves effectively performing pre-planning and executing in accordance with your pre-defined strategies in a disciplined fashion; taking actions to exit investments which become unfavorable in nature (as a seller) and capitalizing on new investment opportunities which become favorable in nature (as a buyer). By periodically rotating out of investments which become less favorable and into investment opportunities which become more favorable in nature you will realize consistent investment success over time. You won’t make winning investments all of the time, but the point is to use strategies and techniques which allow you to make winning investments for much of the time. I can help in these regards.

Please contact me if you need any assistance with any of your financial planning, management, and/or investing needs as this is one of the areas that I actively perform life coaching and training in. Also feel free to click on “Financial Planning, Management, and Investing Related Posts” to the sidebar on the right or below (depending upon which device you are using to view this article) for helpful tips on how to become a solid investor to include some of the topics that I have alluded to in this article such as pre-planning, strategy development, and risk management. These articles provide helpful tips on how to become a solid investor so read through some of these if you think they might be helpful to you. In addition, in case some of you would like to follow along, here is where I regularly post about my stock market activities. So feel free to visit this page if you would like to follow what I’m doing in the stock market at any given time.

Joseph M. Brennan Jr.
CEO/Life Coach – Brighter Days Life Coaching
“Your Brighter Days Life Coach for Life”

Make a Bad Day Better
Make a Good Day Better
Create a Brighter Life

Effective Risk Management Strategies for Volatile and/or Declining Investments

Posted on December 17, 2014April 18, 2015 by Joseph M. Brennan Jr.

This article informs some of the considerations a solid investor evaluates when managing risk and making adjustments in investment strategies over time. In this particular case, this involves managing investment risk for securities that significantly decline in value. For those of you who have been following my stock market investing activities you know that I have been actively buying shares of an oil company called Seadrill (SDRL) over the past several weeks. The last time I bought shares was on 15 Dec. Well, since then the stock has spiked to about a 17% gain overall over the past couple of days which is about a 2.5 year gain on average. So, I decided to sell the shares I recently bought two days ago. The reason why I decided to do this was, because this will allow me to use this cash to buy additional shares should the stock reverse again and begin to decline further. Because in the world of investing nothing is ever certain. This is why developing and refining strategies “up front” is so critical to success. You want to be a disciplined investor. Not an emotional one.

To put things into perspective, regarding the SDRL stock, at the recent bottom a couple of days ago, this stock had lost about 40% since I started buying it, but my overall loss due to price averaging into it was about 12% at that point in time (the stock has dropped about 74% since the end of June). Years ago, as a young investor, I might have invested my entire investment account at the initial buy point, instead of price averaging into it over time, but have since learned that the key to investing success involves being prepared in case things do not turn out the way you might initially expect so that you can capitalize either way that things might go. This strategy has allowed me transform an initial 40% loss into about a 5% gain overall, as of today, with additional gains likely to come. Often lagging stocks become leading stocks, over time, and so long as the risk-reward indicators that I generally look at remain favorable in nature I will continue holding shares of the stock. Either way things go in the future, however, I have a plan. If SDRL continues rising significantly I’ll sell more shares to continue price averaging out of it, but if it falls significantly then I’ll look to buy more shares. Part of being a solid investor is recognizing opportunities when you see them and promptly capitalizing on them when the risk-reward of securities you are tracking become highly favorable (as a buyer) or highly unfavorable (as a potential seller or short seller) in nature.

In summary, developing and refining investment strategies up front can transform you from being an emotional investor into a disciplined one who realizes steady and consistent success over time. I have solid risk management strategies that I have developed for various investment types and investing environments, for the clients that I work with, so feel free to contact me if you’d like to find out more.

This article informs some of the considerations a solid investor evaluates when managing risk and making adjustments in investment strategies over time. Part of being a solid investor involves effectively managing risk and taking actions to exit investments which become unfavorable in nature (as a seller) and capitalizing on new investment opportunities which become favorable in nature (as a buyer). By periodically rotating out of investments which become less favorable and into investment opportunities which become more favorable in nature you will realize consistent investment success over time. You won’t make winning investments all of the time, but the point is to use strategies and techniques which allow you to make winning investments for much of the time. I can help in these regards

Joseph M. Brennan Jr.
CEO/Life Coach – Brighter Days Life Coaching
“Your Brighter Days Life Coach for Life”

Make a Bad Day Better
Make a Good Day Better
Create a Brighter Life

Factors to Consider When Managing Risk and Adjusting Investment Strategies Over Time

Posted on November 17, 2014July 25, 2015 by Joseph M. Brennan Jr.

This article is about some of the factors a solid investor considers when managing risk and making adjustments in investment strategies over time. I recently made the decision to remove funds from my investment account to pay off my mortgage on my investment property as well as the second mortgage on my home. You might question such a decision given that, significant gains can generally be made in the stock market over time and, from a seasonal standpoint, the highest gains typically occur in the stock market between November and April. Well, there were two primary reasons why I made this decision:

(1) The primary stock market index that I track, the S&P 500 (SPX), has gained over 200% over the past six years while the long term average is approximately 7% per year. This indicates that, at some point, it is likely these more recent outsized gains will revert to the mean perhaps by the SPX registering several years of mediocre gains or perhaps even substantial losses. Paying off these mortgages is essentially the equivalent of experiencing guaranteed 4-5% annual gains over the next twenty to thirty years and, given the outsized gains experienced to date, and the potential for mean reversion, this might turn out to be a much better gain over the long term versus risking what I have and investing in something that is far less certain.

(2) Substantially reducing the size of my investment account curbs my risk taking in the stock market and, should substantial losses be experienced in the future, these will have a much more limited impact on my financial position overall.

Years ago I was firmly against using investment funds to pay off mortgages, because the potential stock market gains far outweighed the typical interest rates and the associated tax benefits, but the times have changed and I am now in favor of doing just that; especially for those investors within six or seven years of retirement. I recommend, however, that investors 10+ years away from retirement instead regularly sell shares of their investments so that they will have cash available to take advantage of stock market declines when they happen. In the present investing environment, I prefer cash over investing in bonds or bond funds due to interest rates being at historical lows and the likelihood that interest rates will begin rising over the next few years. According to one article, based on historical data, even as little as a 1% rise in interest rates over a period of six months (a 0.25% rate hike per Fed meeting – the Fed meets every six weeks), which is a reasonable expectation, could result in a 5.4% loss in bonds and the bond funds which track them. So I recommend steering clear of bonds and bond funds at least until interest rates “normalize” a bit. Cash might be a better option until this happens, because you would then only experience losses due to inflation (about a 2% inflation rate per year is a reasonable expectation). However, the losses experienced in bonds and bond funds would be in addition to losses due to inflation. So that 5.4% loss I alluded to earlier would effectively amount to a 7.4% loss overall when also including the inflationary effect. Of course, there are times when the bond market might do well, especially when there is substantial fear in the stock market and people sell their stocks and buy bonds instead, but it is likely that these spikes will be short lived and temporary in nature. Furthermore, timing these spikes is likely to prove to be difficult both when buying into and when selling out of these. I believe a much safer way to invest going forward is cashing out from time to time and using that cash to buy stocks during stock market declines. Another option would be to purchase portfolio protection such as volatility products which rise when overall stock markets fall.

In summary, the risk-reward of the overall stock market is no longer as favorable as it has been in the past, the risk-reward of the overall bond market appears to be highly unfavorable in nature with the exception of short term spikes due to fear in the stock market, and cash appears to be “king” given the investing environment we are rapidly approaching so that we can capitalize on potential stock market declines. I have a solid risk management strategy that I developed specifically for use in investing environments such as this, for the clients that I work with, so feel free to contact me if you’d like to find out more.

Each of the above are indications that it might make sense to tread carefully going forward with respect to your investments. Effectively managing your risk and having cash available to take advantage of future compelling investment opportunities will allow you to succeed in this kind of investing environment. Being a solid investor involves effectively managing risk and taking actions to exit investments which become unfavorable in nature and capitalizing on new investment opportunities which become favorable in nature. By periodically rotating out of investments which become less favorable and into investment opportunities which become more favorable in nature you will realize consistent investment success over time. You won’t make winning investments all of the time, but the point is to use strategies and techniques which allow you to make winning investments for much of the time. I can help in these regards.

This article informs some of the factors a solid investor considers when managing risk and making adjustments in investment strategies over time. Part of being a successful investor, and realizing consistent gains over time, involves recognizing indicators of when to reduce your exposure to certain investment alternatives, and risk overall, when to increase your exposure to certain investment alternatives, and risk overall, and when to cash out and sit on the sidelines patiently awaiting the next compelling investment opportunities and favorable investing environments overall.

Other articles that I’ve written related to financial planning, management, and investing include:
(1) Reasons to Sell or Short-Sell Stocks and Other Investments
(2) Risk: How Much Should You Take When Investing Your Money?
(3) Using Technical Indicators and Charts to Guide Stock Market Activities and Using Price Averaging to Manage Risk
(4) Using Bollinger Bands, Stochastics, and Other Indicators to Guide Stock Market Activities
(5) Using Moving Averages and Price Averaging to Realize Consistent Gains in the Stock Market

These articles provide helpful tips on how to become a solid investor so read through some of these if you think they might be helpful to you. In addition, in case some of you would like to follow along, here is where I regularly post about my stock market activities. So feel free to visit this page if you’d like to follow what I’m doing in the stock market at any given time.

For those that did not know, I generally perform life coaching and training services in two primary areas: 1) Personal and Professional Improvement, Development, and Growth, and 2) Financial Planning, Management, and Investing. As such, I generally alternate the articles that I write via my blogs between these two topic areas. This particular article is associated with the second area that I life coach in. So if you don’t have much interest in financial planning, management, and investing, rest assured that the next article that I write will be in the area that you might have greater interest in; the personal and professional improvement, development, and growth area. You can also follow me on Twitter if you like at: Joseph M Brennan Jr @ BrighterDaysLC

Joseph M. Brennan Jr.
CEO/Life Coach – Brighter Days Life Coaching
“Your Brighter Days Life Coach for Life”

Make a Bad Day Better
Make a Good Day Better
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BRIGHTER DAYS LIFE COACHING®

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