Is Your Portfolio Ready for Dow 6,500?
By Ron DeLegge, Editor
February 24, 2009
SAN DIEGO (ETFguide.com) Ė Not long ago, if you suggested the Dow Jones Industrial Average (NYSEArca: DIA) would be returning to 1997 levels in 2009, people wouldíve thought you were nuts. But thatís what happened this week when the Dow hit 7,114.
Now the question is how much lower can it go?
Interestingly, many financial experts donít see the same bear market as you and me.
In December, Barronís asked its round table of financial experts to predict how the S&P 500 stock index (NYSEArca: SPY) would do in 2009. The unanimous vote was the S&P would gain anywhere from 5% to 13%, with a median gain of 13%. So far the experts look very wrong. Since the beginning of the year, the S&P is already down 17.7%. Then again, we shouldnít be surprised by the bullish bias that Wall Streetís analysts have shown the propensity to have.
Is a bearish bias the answer?
Just ask Harry S. Dent Jr. In 2004, he was a raging bull by predicting the Dow would reach 40,000. That never came true and so he decided to change teams by becoming a bear. His latest book is titled, ďThe Great Depression Ahead.Ē Isnít it curious how the financial experts that didnít foresee the current severe recession, now see it becoming a full blown 1930s styled economic depression?
With stocks reeling, itís entirely plausible that Dow 6,500 could become the next stop. Will your investment portfolio be ready? Instead of fretting over that possibility, focus on things you can control.
Hereís a few suggestions:
Getting a Suitable Asset Mix
My portfolio is down 75% and the stock market is down 50%, now what? Many investors find themselves in a situation similar to this. They thought they bought the right mutual funds and stocks, but now theyíve been clobbered.
If your investments have lost more than the market, itís probably because youíve been concentrating your investments in the wrong places. Maybe you owned too much of one stock or mutual fund. And the answer to your financial meltdown isnít necessarily converting your entire portfolio to cash, but rather on getting the correct mix of assets for your situation.
A good asset allocation should contain market exposure to major asset classes like bonds (NYSEArca: BND), commodities (NYSEArca: GSG), international stocks (NYSEArca: EFA), emerging markets stocks (NYSEArca: VWO), international real estate (NYSEArca: RWX), treasury inflation protected securities (NYSEArca: IPE) U.S. real estate (NYSEArca: VNQ), U.S. stocks (NYSEArca: VTI), and cash. What percentage of your money should be allocated to each of these key areas? Itís your responsibility to come up with the correct answer and if you canít do it by yourself, then get a financial professional that works with ETFs to help you.
Use the Right Building Blocks
After youíve determined what percentage of your money you want to each major asset class, then you can begin searching out funds that give you the best pure market exposure to those areas. In this regard, itís advisable to stick with index funds or index ETFs that follow true market benchmarks Ė not ones attempting to beat them.
Unlike conventional index mutual funds, index ETFs offer much greater financial flexibility. In our latest ETF Profit Strategies Newsletter we explain how ETFs can be used in conjunction with call/put options to generate more income and to hedge against a declining market. Our ETF newsletter is designed for serious investors interested in profiting in any kind of market.
Use Portfolio Building Tools
Today, there are more than 800 ETF products to choose from. Which of these investments do you select? Which do you avoid? Where do you start?
At ETFguide.com weíve tried to emphasize the importance of focusing on ETF investments in the context of building rock solid investment portfolios. To that end, we introduced our Ready-to-Go Portfolios back in 2005 to help ETF investors assemble and manage their own ETF portfolios.
Anyone that tells you itís not possible to have successful results during these turbulent times isnít telling the truth. Since the beginning of the year through the market close of 2/23 our Contrarian Fox and Capital Defense ETF portfolios have increased +5.53% and +5.32% respectively. This is visible proof that getting the right mix of ETFs is worth the effort.
Is your portfolio ready for Dow 6,500?
Regardless of what happens, a diversified portfolio constructed with the right building blocks should put you well ahead of the investing masses.