Can Your Portfolio Weather the Storm?
Ron DeLegge, Editor
March 23, 2009
SAN DIEGO (ETFguide.com) – If you tried to paint a portrait of today’s national economy and financial markets, it would resemble a disorganized Jackson Pollack drip painting. Art imitates life, as they say. But hopefully your investment portfolio isn’t a disorganized mess.
Disorganization surrounds us everywhere.
According to a Wall Street Journal report, Treasury Secretary Timothy Geithner’s latest plan is to “bank on private cash.” This “private cash” is supposed to magically appear from the private sector which is quite different than the magical appearance of “public cash” courtesy of looted taxpayers. Apparently, the $1.487 trillion experiment in government backed bailouts with “public cash” has been a fruitless cause. Just look at all the rotten apples.
Government Sponsored Ponzi Schemes
The AIG (NYSE: AIG) soap opera is another example of colossal disorganization. It also provides personal lessons on how not to manage your own money.
Never mind the bonus frenzy. The bigger scandal is how AIG redirected some $90 billion of its own bailout winnings to other companies many of whom already received their fair share of bailout winnings. Isn’t that the definition of “Robbing Peter to pay Paul?” According to the Madoff indictment, we’re told that “Robbing Peter to pay Paul” is a Ponzi scheme. If that’s true, then AIG’s reported handling of its bailout winnings would make it a government sponsored Ponzi scheme. Would this also make A.I.G. the largest corporate P.I.G.?
What’s the essence of the madness?
One interpretation is you’ve got a fiscally out-of-control government, attempting to govern a fiscally out-of-control Wall Street. You’ve probably seen a version of this before too. It’s something straight out of a 10-cent Vaudeville comedy skit.
Weathering the Storm
Your IRA, 401(k) plan and investments can successfully weather the storm depending on you.
Conventional methods for making money aren’t working like they used to. For example, the “Guess and Pray” methodology has been particular ineffective during this latest bear market bout.
Some of the “winners” people have invested in include a long list of stocks that have cratered the most. Companies like Bank of America (NYSE: BAC), General Electric (NYSE: GE), and Citigroup (NYSE: C) were supposed to be stable bets during unstable times. Instead of avoiding the instability, they joined it and in some cases, even added to it.
Likewise, some of America’s so-called best portfolio managers have turned out to be the worst.
At one time, portfolio manager Bill Miller was viewed as the “smart money” where someone could put their nest egg and watch it grow. Then, before it was too late, people learned that Miller’s Legg Mason Value FI (Nasdaq: LMVFX) was overdosing on homebuilding stocks (NYSEArca: XHB) and financial stocks (NYSEArca: XLF). Bill Miller is not alone. He just happens to be the most visible face for thousands of other shipwrecked portfolio managers.
Building on the Right Foundation
The first step to surviving a financial hurricane is not to build your financial house on sand. Through thick and thin, funds and ETFs linked to major benchmark indexes continue to routinely outperform Wall Street’s overpaid fund managers.
There is visible evidence too, that investment portfolios constructed with ETFs can produce desirable results even during tough times like these.
Despite the worst stock market environment since the early 1930s, each of ETFguide’s six model ETF portfolios have beaten major benchmarks like the S&P 500 (NYSEArca: SPY) , MSCI EAFE (NYSEArca: EFA), and commodities (NYSEArca: GSG). On a year-to-date basis, our ETF portfolios continue to outperform – and to do that with substantially lower investment costs.
How’s your portfolio performing?
Getting Your Mind Right
“Got to get your mind right” was a famous line in the movie Cool Hand Luke. Remember that? In order for you to get your money right, you have to first get your mind right. This is not the friendly stock market of a few years ago. And combining today’s bear market with the wrong investment philosophy will inevitably lead to financial disaster. Millions of investors have lost more than the market and millions more will join them. Will you be one of them?
Stock picking is more hazardous to your financial health than you may realize. For that reason, in the February edition of our ETF Profit Strategy newsletter we assembled a list of “50 Blue Chip Stocks and their ETF Replacements.” We matched up stocks with their corresponding ETFs by market size, market orientation, and industry sector.
There’s a good chance many of the blue chip stocks you own have made our list. Isn’t it time you reorganized your portfolio?