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So, with the exception of one local business stock, I am only trading ETF's. First of all, they have no commission fee, and secondly, they cover large markets instead of individual stocks. Sure stocks are likely to make more money than ETF's, but I don't want to spend the time and probably don't know how to research them correctly. Also, their more risky.
That being said, I'm waiting for the market to crash. Because I only have ETF's, I am going by the "buy at the bottom and sell as they go on up" strategy instead of the "buy as they are going up and sell at the top strategy". I figure that it is easier to find when the market hits bottom vs when it's at its peak.
Is this a good investment strategy for a 19 year old that doesn't want to spend too much time looking at stocks and researching them?
"buy low sell high" is such an over-simplification of what you should do I wish folks would STOP using it already. The best approach is to buy and sell according to the portfolio mix you need.
At 19 you should be mostly equities, if not 100%. If you want to go ETFs that is your choice. Mutual funds are another choice. I do agree that if you are not a professional trader and/or you do not have the time to track the stocks as if you were the CEO of the company you trade in, then you should NOT do it.
For you, I'd pick a good S&P500 ETF and let it go till after college.
So, with the exception of one local business stock, I am only trading ETF's. First of all, they have no commission fee, and secondly, they cover large markets instead of individual stocks. Sure stocks are likely to make more money than ETF's, but I don't want to spend the time and probably don't know how to research them correctly. Also, their more risky.
That being said, I'm waiting for the market to crash. Because I only have ETF's, I am going by the "buy at the bottom and sell as they go on up" strategy instead of the "buy as they are going up and sell at the top strategy". I figure that it is easier to find when the market hits bottom vs when it's at its peak.
Is this a good investment strategy for a 19 year old that doesn't want to spend too much time looking at stocks and researching them?
If you are not doing any research how do you know when the market is going to crash? How do you know when you are buying at the bottom?
You are 19 years old and I doubt you have enough experience to understand the dynamics of the market and investment strategies.
Really, more than waiting for the market to crash, I am investing foreign until I see a dip in the US markets.
Also, is there any reason why I should invest in a mutual fund instead of ETF's? The only difference I see is mutual funds have fees attached.
Next question, should I do large cap, mid cap, small cap, dividend, or growth or a mixture of these?
You should be aware that mutual funds and ETFs will also crash with the market. I think people often overlook this fact. I also do not think it is a good strategy to wait for the next crash because you should think long term and not try to GUESS tops and bottoms. It will end up hurting you long term. If there are good buys, do it now and don't wait. You can save money in your bank account and use it when a crash happens, but who knows, it might be 5, 10 or 15 years from now. The market will always have corrections, but market crashes happen for a reason, so ask yourself why would the market crash soon. I don't see any reason why we would have a crash like 2008/2009 in the near future. A 10 to 15% correction, sure, but not a market crash.
You should bear in mind that leveraged ETFs decay and make horrible long term investments. In fact you could have shorted almost all leveraged ETFs the day they came out and it would have been a no-lose situation since many are now trading 95-99% below the levels they started out at due to 'decay' ... Even some non leveraged ETFs decay, for example, any 'short' ETF funds that bet against the market should be used for short term investing only. Also any ETFs that track commodities using futures contracts rather than the underlying asset, which is almost all of them except precious metals ones.
Here's what the typical chart of many ETFs that track commodities look like, or any leveraged or short ETFs...
You need to make sure the ETF you buy is tracking whatever asset by using the physical asset, and not options or futures contracts. Or use them for short term only. The example I used, UNG, could be shorted right now, with fair certainty that it will continue to decay... but these ETFs are often hard to short on purpose for this reason.
Also, is there any reason why I should invest in a mutual fund instead of ETF's? The only difference I see is mutual funds have fees attached.
Well, both mutual funds AND ETFs have management fees. The main difference between them is the way they are traded. ETFs give you much more flexibility. And many mutual funds are actively-managed, while most (but not all) ETFs are passively-managed (like index funds).
Quote:
Originally Posted by stockwiz
You should bear in mind that leveraged ETFs decay and make horrible long term investments. In fact you could have shorted almost all leveraged ETFs the day they came out and it would have been a no-lose situation since many are now trading 95-99% below the levels they started out at due to 'decay' ...
Yep, however, shorting leveraged ETFs in one direction can cause big-time pain for long periods of time, particularly if the market is in a trending mood. Now, if you're shorting both the bull AND the bear versions of a particular leveraged ETF, there's much less risk as they negate one another on any particular day. Yet long term, the decay will take them down enough that, OVERALL, your "pair trade" will be a winner (even if one of them is still a loser for you, by itself). There are no "sure things" in the market, but this particular trade is as about as close to one as it gets, IMO.
Last edited by LongArm; 05-17-2013 at 11:37 AM..
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