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The Truth About Investment Performance
Jul 10, 2011
The only way to achieve your objectives is to consistently outperform the Dow Jones Industrial Average.  Period.  End of story.
 
That makes mutual funds bad investments, as the vast majority of them perform below the market average.  Bad investments drain wealth. 
  
Let’s imagine that your basket of mutuals outperformed all the rest and returned market returns for the last ten years; that is, you have matched the DJIA’s return from mid 2001 through mid 2011. During this time the Dow returned a total of 15%, or just 1.5% per year.  Inflation during this same time averaged 3% per year, which means market performing investors lost 1.5% per year. This translates into big long term losses for investors – and an awful surprise at retirement.
 
This is the reason many people arrive at retirement’s door with less money than they need and/or thought they’d have.  It’s because they’re not making money in real terms. They’re underperforming the average and inflation is robbing their wealth like a thief in the night. 
 

What to do? 

Use my 15-51 portfolio builder to create a portfolio that will achieve your financial objectives.  It's easy and it's free!
 
As an example, my 15-51 Indicator (revealed in LOSE YOUR BROKER, NOT YOUR MONEY) returned 367%, or 37% per year, during this same ten year period.  That's 34% per year after inflation.  That’s what you need to do to make money.  
 

You can do it too!

Lose Your Broker is not a financial institution and as such our webtools do not place stock orders.  There's no risk in using our tools.  And if the portfolio you created doesn't perform as you hope, join one of my on-line workshops and I will personally help you work out the kinks -- that, too, is free!  
 

What are you waiting for? 

It's time to Lose Your Broker Not Your Money.  
 
ShieldThe road to financial independence.™
 
 
Inflation v. Growth: a Picture is Worth 1,000 words
Jul 08, 2011
They say inflation isn’t a problem, or that little exists in "the market" today. They couldn’t be more wrong.
 
The difference between Nominal GDP and Real GDP is inflation. Nominal GDP is measured in current dollars, and Real GDP is measured in a prior year’s dollars (in this case 2005 dollars.)  Below is a chart comparing stock market activity to GDP from year ended 12/31/2002 through 6/20/2011 – basically the last recessionary bottom to now. 
 
 DJIA_LB_New
  
            This chart clearly shows the presence of inflation in the economy -- and in the stock market. Inflation accounts for approximately 3,000 Dow points since 2002 (85% of its gain), which coincides, not ironically, with reckless government spending and the addition of over $2 trillion of new currency injected into the economy by the Fed.  That’s why commodity prices have also risen so sharply. 
            That's inflation, not growth. 

            Here's what growth looks like. 

 
15-51LB_New
 

            15-51 portfolio construction: It is the road to financial independence.

Asset Allocation for Today's Market
Jul 06, 2011
I closed the final chapter of LOSE YOUR BROKER, NOT YOUR MONEY by recommending a balanced approach towards investment by splitting your assets equally among three or four asset classes, citing the below allocation example:
                        Stocks    25%
                        Bonds     25%
                        Gold      25%
                        Cash      25%
 
As mentioned in the book, when making investment decisions you should take your cues from the Market not the stock market. And for all the change that was promised after the "financial crisis," central governance continues to make the same irresponsible mistakes. 
 
Monetary policy has been way too loose for far too long and the dollar continues to lose value because of it. They say inflation is not a problem – but have you seen the price of food and gas? Commodity prices also continue to rise with volatility, and gold seems to reach a new high everyday. Unemployment remains stubbornly high and is once again up over 9% (and that doesn’t count the people who have dropped off the list due to expired benefits.) Add to this reckless government spending (this year a $1.7 trillion deficit is projected) and what you have is America following Greece off the proverbial cliff. 
 
When the condition of the Market is increasingly negative you should approach stocks cautiously. As a consequence, conservative investors should consider adjusting their asset allocations to the below spread.
                         Stocks  15%
                         Bonds   25%
                         Gold     25% (or 35%)
                         Cash     35% (or 25%)
 
Reason: Cash is king. You can’t buy low without it. Investors looking for growth more aggressively can add to their gold position, as world currencies remain under persistent pressure. Whatever your investment posture is the formula for success never changes: Buy Low and Sell High. 
 
Successful investors do that by not buying into the stock market hype and taking their cues from what's actually happening in the marketplace.  There's simply no reason to buy into the fluff.
 

Didn't understand this blog?  Contact Dan and join a workshop.

 
Pricing "the market" and Establishing Action Zones
Jul 03, 2011
As you know, GDP is reported by the government after market activity has occurred. The stock market is priced daily on the whims of current news and events. For this reason, the DJIA will always trade around GDP, at some multiple above or below it. 
 
Remember that GDP is where the DJIA always wants to go. That’s its goal.  Knowing this, it’s easy to draw a parallel between the two and use them to define a range to make your investment transactions.  I call this range an action zone. 
 
For instance, the Dow traded at an average GDP multiple of .89 for the past 15 years (1995-6/2011). The low multiple was .61, and since the last bottom (2002) it was .83. Once these multiples are applied the results suggest that the DJIA will trade between 9,184 and 13,323 until the next correction.  That's the action zone. 
 
You can always profit by targeting the midpoint of the action of zone to make your investment moves (right now 11,245). That’s about 700 points higher than what I wrote in chapter 8 of LOSE YOUR BROKER NOT YOUR MONEY. Why the change?  Was my book wrong?
 
No. Market conditions changed.
 
The Fed has pumped more than two trillion dollars of currency into the economy and has continued to run trillion dollar deficits since I wrote that chapter. Both practices are extremely inflationary, and right now both the economy and stock market are artificially inflated.  Sooner or later they will have to correct. 
 
How do we know?
 
Because the government can’t keep running trillion dollar deficits while printing currency like it grows on trees.  Once these practices stop, the economy will return to recession and the stock market will sell off.  That’s the way it works. 
 
My advice: Don’t try to sell at the highest and buy at the lowest. It’s Buy Low Sell High. Pick a spot in the action zone to make your move and then wait for conditions to change -- or better yet, a clearance sale to Buy Low.   
 
(PS: Remember the stock market overreacts to everything.  "The market" can easily trade below 9,184 when correction hits.  In fact, you can count on it.) 
 
ShieldThe road to financial independence.™
 

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