Cash Is Best Now

CASH IS A POSITION

You will never hear that from any broker. Even thediscount brokers won’t utter it.Almost every investor I speak with tells me his account has lost value over the past several months. Mostsay they have lost about 20%. It is going to get worse.

Brokers tell investors that mutual funds are “safe”. Safe from what? Certainly not from seeing your money
disappear. They never want you to sell.

Why?

There are many hidden fees even in no-load mutual funds. Between the fund and the brokerage company they are skimming about 2% of your money every year. There are a few that do have less than ½%expenses, but they are few and far between.

In a brokerage company if a broker had his clients go to cash he would be fired. That piddling 1% skim means a great deal to the office manager. His office is rated on the total amount of funds. If one of his brokers suddenly had his clients transfer several million to a money market account the next day the broker would not have a desk.

Mutual fund managers are paid by the totalamount in the fund and NOT by how well or how much they make for shareholders. When a broker gets his registration he is given two manuals. The first has all the rules and regulations of the Securities and Exchange Commission (SEC). He must not violate any of these or he will lose his license.

The second is a sales manual on how to open new accounts. That is basically every broker’s job - bring in new money and lots of it.

There is no third manual. What third manual?

That is how to make money for customers, but more important how to protect a client’s money from loss.

During the 2000 - 2003 crash that saw the NASDAQ evaporate 78% most brokers were in shock. They asked their boss what can we do. He either did not know or was not allowed to tell them.

Brokerage companies will sacrifice their customers rather than try to help them preserve their capital.

Seems pretty horrible. That’s life on Wall Street. The current credit crisis is all about the greed for money. The little guy in a local office that you know just doesn’t know that he doesn’t know. He was never taught, It is not going to change.

It is your money. YOU must protect it. There are two choices. Find a fee based broker or financial planner (and most of them don’t know how to come in out of the rain) or YOU must have an exit strategy.

Check the portfolio of the broker to see what he did in 2000 to 2003. Make him give references.

You may not like what I said. You will wish you did when it comes to retirement time.

Al Thomas’ best selling book, “If It Doesn’t Go Up, Don’t Buy It!” has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter and receive his market letter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know. Copyright 2009 Williamsburg Investment Co. All rights reserved

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Portfolio Protection - The Myth of Self Insurance

Imagine it is May 2007, and you have been asked in general conversation if you believed the world’s share markets could fall to their lows of March 9 2009. Imagine further that you had a healthy portfolio of stocks broadly based on the S & P 500, and the value of those shares was increasing steadily.

Unless you were an economic Nostradamus, I doubt that you would have answered you were expecting a bear-market, and you had made plans to profit from the contraction.

Further, I hazard a guess you would not have considered a risk management strategy to minimise the impact of such a scenario on your investment portfolio. If you had, you would have questioned the need for such a strategy, as the bull market seemed perennial.

If you were under 45, you would not even have thought of your retirement savings, if indeed you had any.

Sadly, this imaginary scenario is non-fiction. Thousands of investors from all around the world suffered falls in the value of their investments of 40% or even more. For many, leverage compounded their loss, often totally.

The facts are indisputable. Given the choice, people choose to self insure, or “take the risk” labouring under the misconception that disasters always happen to other people, not to them.

Insurance companies tell the same stories. How high incomes earning 20 or 30 somethings argue to their insurance advisers that they are healthy, they are “good drivers” or “don’t think it will happen” and refuse to protect themselves, their possessions, or their assets.

People focus on the cost of the protection, rather than the cost of the potential loss. In retrospect, such focus is demonstrably flawed. You need only ask a single parent or the victim of a house fire if insurance is a worthwhile strategy, and if the cost of insurance is justified.

Just think: had you been offered the opportunity to insure your portfolio or retirement savings, would you have considered the offer an imposition? A cost that you could not accept?

The cost of the myth, the myth that self insurance is a valid risk management strategy for portfolios, has been about 40% of most investors’ portfolios. If your portfolio was worth $500,000 the self-insurance premium was $200,000.

Calculation of the cost of protection is simple. The potential loss is estimated, and the statistical probabilities of such an event calculated.

The final cost to the insured, the “premium,”, takes into consideration other relevant factors particular to the type risk being covered. Of course, the insurer will also require compensation, and their profit is built into the cost, or is charged as brokerage.

Portfolio protection strategies have been used by canny investors for decades. Financial instruments such as Call Options and Put Options have been used since the early 70’s when the Chicago Board of Trade created the Chicago Board Options Exchange (CBOE) to trade options on a small number of New York Stock Exchange (NYSE) listed equities.

Prudent use of Options permits investors to protect their portfolios, and even profit from bear market conditions.

How much more have you to lose?

if you found the information useful, interesting, or just confusing, you can get informational videos and other free stuff by going to http://www.abfgroup.biz and look for the Options Education link. Thanks for your interest, Donal Fuller don@abfgroup.biz

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