Domestic stock funds (40%)

* (5%) Wilshire 5000 (VTSMX)
* (15%) S&P 500 Index (VFINX)
* (10%) Wilshire 4500 Mid-/Small-Cap (VEXMX)
* (5%) MSCI US Small-Cap Growth (VISGX)
* (5%) MSCI US Small-Cap Value (VISVX)

Foreign stock funds (30%)

* (15%) Emerging Markets MSCI-EMGFree (VEIEX)
* (10%) Pacific Stock Index MSCI-PAC (VPACX)
* (5%) European Stock Index MSCI-EUR (VEURX)

Fixed-income funds (30%)

* (10%) TIPS: Inflation-Protected Securities (VIPSX)
* (10%) High-Yield Corporate (VWEHX)
* (10%) Long-Term Treasury (VUSTX)

This is more for myself so that I don’t forget this, but I thought I’d paste it here since people might be interested. This is a fairly good strategy for long term retirement planning investing because it’s basically a BUY and HOLD style of risk management.

Whenever the Federal Reserve announces the interest rates, gold prices also react. If interest rates are increased, gold prices fall, and vice-versa, indicating a negative correlation. Sometimes an explanation is offered that when interest rates go up, the higher returns attract foreign capital and demand for dollars. The increased demand for dollars raises the US dollar-exchange rate. This higher return on dollar makes gold less attractive and hence the gold prices drop.

This is the theory put forward by television channels and economic courses around the world. One may refer to the above theory as the “Maggi Theory of Gold”. The theory is applicable for the first two minutes of trading after announcement of an interest rate. Beyond that, the historical evidence has been quite opposing to what the above theory suggests.

Gold is not an interest?bearing instrument. So “other things being equal” any interest?bearing instrument should be preferable. It does not matter whether the interest rate is 1% or 50%, one would be worse off holding gold. Therefore, it is not the interest rate that controls gold prices, but the “other things” that are assumed to be equal.

To find what are the “other things”, we need to go to the basics of investing. Benjamin Graham says that an investment operation is one which, upon through analysis, promises safety of principal and an adequate return. Most would agree that it should at least be equal to the risk-free interest rate and a risk premium for holding a risky asset class. When inflation is expected to be high, investors favor gold as a mechanism for protecting their purchasing power. Consequently, when confidence in a currency is high (which means low inflation), gold prices and interest rates would be low.

Now the question arises how high the gold price would go in the next decade of rising interest rates. In the previous interest rate cycle of 1970 to 1983, prices increased nearly 20 times, from $35 to about $675. This time around, price started from $260, so will they exceed $5000? One could argue that the move appears exaggerated, as gold price fixed by the US Government in 1970 at $35, was artificially low. On the other hand, one could make a case that in every economic aspect, be it fiscal deficit, consumer debt, grade deficit, etc., the US is much worse than it was during the 1970s. Hence gold could be headed for an even greater move.

With continuous media attention, exchange traded funds are becoming synonymous in investor’s minds with low-cost investing. However, you cannot count traditional mutual funds out yet. In reality, for the typical investor who invests a little money upfront and hopes to derive several hundred bucks a month over 15 or 20 years, ETFs are likely to be more expensive than traditional index funds from providers like Vanguard Group Inc and Fidelity Investments.

While traditional index funds exist for decades, ETFs have become dear to financial advisors and Wall Street traders in the past few years, accumulating nearly $350 billion in assets. ETFs have become more popular as investors can trade them rapidly and ETFs expenses are perceived as being low. One frequently cited advantage of ETFs is that unlike traditional mutual funds, they rarely need to distribute capital gains, an event that can prompt tax bills for shareholders.

However, all the advantages of these funds, for small investor, seem much less dramatic if they don’t vanish entirely. For example, ETFs, unlike mutual funds, can be traded during the middle of the day. But for an average investor, saving for college or retirement, intra-day trading is not necessary and may sometimes lead to bad decisions. Also while ETFs’ expense ratio are often hyped as rock bottom, that claim is supported best when ETFs are compared to actively managed funds, which employ a stock-picker to try to beat the market. To some extent, credit goes to recent price cuts by Fidelity and Vanguard. The expenses for some of the most popular broad?market stock index funds are also competitive, if not sometimes lower than equivalent ETFs. In addition, since ETFs are bought and sold like a stock, they are traded through a brokerage account, adding extra cost. Every time you buy an ETF, it adds a transaction cost.

Unfortunately, there is no rule to decide when it is cheaper to invest in an ETF than a traditional index mutual fund. Many investors who look closely at ETFs may find that what is a great tool for moving in and out of the market quickly, isn’t necessarily the best option for basic month-to-month investing.

Money is earned to be invested; and mutual funds are one of the best investment options available today. This is because a mutual fund is a fund that permits a group of people to pool their money to invest in a single fund. A fund manager is the person in charge of investing the money that is collected into the specific mutual funds. So by investing on a mutual fund, you will actually be buying shares of the mutual funds and thus become a shareholder of the mutual fund.

Mutual funds are a wise choice for investment as they are cost-efficient and easy for investment. Its biggest advantage is its diversification. You can store money for emergencies, savings or a safe place for storing large sums of money. These types of mutual funds are called money market funds and are short term investments offering double the interest rates banks offer. The specialty of money market funds is that you can issue checks on your account with its great liquidity.

Another type of mutual bond is the bond fund which is basically riskier than money market funds. They are usually used to produce income on retirement and to stabilize a portfolio. These bond funds are further divided into municipal bond funds, corporate bond funds, US Government bond funds, and mortgage backed security funds. Another classification of bond funds is by its maturity. It is then termed as short-term bonds, intermediate term bonds, and long term bonds. The third type of mutual fund is the stock fund where it is riskier than bond funds, but great for growing of money. They perform much better than money market funds and bond funds over long periods of time.

The main benefit of using mutual funds in a portfolio is to achieve maximum diversification in your investments. Another reason people use mutual funds in a portfolio is to target a particular asset class to invest, without having to invest and without buying of any securities of that class. When investing in mutual funds in your portfolio, make sure to choose the right mutual bonds with the help of the mutual fund manager.

Mutual funds are again divided into open end and closed end funds, where most of the funds are open ended. An open ended mutual fund is one where there is no limit to the number of new shares that can be issued by it. Shareholders - both new and existing ones - can add money to their fund, to have new shares issued to them. Open ended funds are redeemable; and to determine the values of a share, you just have to use the Net Asset Value.

As the name implies, closed end funds are more like stocks and issue only a limited number of shares during a public offering. These funds are not obligated to issue new shares and its price is determined by market demand. This is why they are sometimes sold either at a discount or a premium of the net asset value. This is a better choice for the experienced investor, and can easily be bought through a broker.

Generally speaking, a futures contract represents an agreement to buy (or sell) a commodity at a pre-defined price on a pre-defined date.

Commonly, futures are available in these following flavours: (These flavours are defined by the underlying “cash” product)

Stock Index Futures – One can’t really buy an index, so, these are settled in cash using some kind of correlation.
Commodity Futures – Taking as an example the Gold futures contract, it gives you the right to buy or sell a quantity of Gold at a pre-defined price in the future.
Interest Rate Futures (These include Bill Futures, Deposit Futures, and Government Bond Futures) – As well as others, they are typically settled in cash.

Future contracts were created to allow people that want more risk to take it from people that want less. Technically it’s called risk transfer.

How is this done? Well, using several features like:
* Liquidity
* Leverage (a smaller amount of money is deposited as a margin for a larger amount of money)
* High correlation degree between the changes in the underlying instrument and the changes in the futures price. Usually this is ensured with the mechanism of basis trading. In the commodity futures case, if one sells a commodity future he’s promising to deliver “N” amount of this commodity at a certain price (now fixed) at a pre-defined date.

All this means that if the futures price becomes too high in relation to the price of the commodity these days, you can borrow money and buy the commodity just now, and then sell a futures contract for it (on margin). If the difference in price between the two is big enough, then you’ll be able to pay the loan and the interest and still have some risk less profit. Pure arbitrage I should say.

On the other hand, if the futures price falls far below from the commodity price, then you can short-sell the commodity and buy the future.

You can borrow the commodity until the date of delivery for the future (bonds are a good example of this borrowing), and then cover your short position when taking deliverance of some of the commodity at the predefined date.

Both these two arbitrage trades are well known as “basis trades”, because you are trading the “basis” between the futures contract and the underlying “cash product”.

Futures are derivative products and should only be used by well experienced traders.

One of the latest types of investments is the Exchange Traded Fund, aka the ETF. This fund is a mix of a stock and index fund, but is used for investment in a specific market.

ETFs are treated and traded like all other stock on the stock exchange although they exhibit performances of a specific index. ETFs are usually bought through a broker, while dividends are given to stock holders. The only difference between ETFs and stocks are that they are fixed portfolio of securities mirroring a particular index. The S&P 500 Index Fund is the first exchange traded fund which began its trading on the American Stock Exchange in 1993.

ETFs can be bought individually, for a short term and on a margin. The commission for ETFs is the same as on any regular trade. The ETF can be easily bought from a broker, and is a great means of diversification. It provides diversification because many stocks and bonds in an ETF. When buying ETFs, it is always better to avoid investing ETFs that invest in similar stocks.

Today, there are more than one hundred exchange traded funds around. These ETFs cover the broadest market index like S&P 500. The main benefit of an ETF is the tax efficiency it offers. This is because since the shares of ETFs don’t have to be distributed every year, you owe tax only when you sell ETF shares. However, since ETFS sometimes make capital-gains and dividend distributions, it is necessary to pay some tax.

One of the main benefits of having an ETF in the portfolio is that it creates a varied investment portfolio. The ETF along with US stocks, bonds, and other foreign stocks provide a portfolio that presents a superior return on investments, with limited risk. Just as much that ETFs prove beneficial to a portfolio, there are also a few drawbacks to it. The main drawback is that you have to buy ETFs through brokers as you would buy stocks. With these brokers, there is a need for paying commissions. This aspect of paying commission makes the buying and selling of ETFs a drawback to a portfolio.

Moreover, this commission makes ETFs an expensive choice for those individuals who would like to invest on a regular basis. This is due to the fact that the commission reduces the returns you would other wise expect from the investment. Buying ETFs from discount brokers may reduce the expenditure you will have to make for your investment.

There are different types of investment that people can turn to; mutual funds, stock bonds, stocks, real estate, gold and many other options.

One of the best forms of short term investments is treasury-bills. Tbills are basically short term obligations to the government that is issued for terms of one year or less. (more…)

The team at High Chart Patterns, a stock newsletter service, wrote in with tips on trading stock pivot prices.

We wanted to discuss today the various ways you can use our entry prices; numbers which are always representative of an important spot, be it resistance, break of downtrend line, etc, and which often act like magnets for stocks.
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With all the stuff happening in Iran and North Korea, the commodities traders and futures market is really putting the $75 resistance to the test. There is a lot of uncertainty regarding geopolitical issues, and uncertainty drives up premiums on oil futures.

An analyst on oil trading said that oil will hit $100 a barrel. Here is something to consider. Remember the oil shock back then. If you take the crude prices back then, and correct for inflation, you will see that oil prices were about $83. This price will definitely become a pivot point for crude prices if there is a breakout above $75.

Another pricing factor for trading oil futures to consider is this. How high do oil prices have to soar before alternative energy becomes an economical choice? Right now, oil is king because it is practical and cheap. However, if oil prices go high enough, it will make more sense to go with alternative energy. No one knows what the magic price is, but once it hits that price, alternative energy will become a fierce player in the energy markets. Back in the 70s and 80s alternative energy started to catch on for awhile. However, OPEC took the offensive by dropping crude prices to record lows, effectively killing the alternative energy movement. This time, however, because of supply issues and lack of new discoveries, OPEC is not going to be able to control the oil futures market.

Here is a quick lesson on oil refining. There are 3 layers of oil: light, intermediate, and heavy. Light is less dense and is always on top. Light is the cheapest to extract. Heavy is the most expensive. At most wells, they extract only the light and intermediate. The heavy layer is usually too uneconomical to extract. This also factors into pricing.

I really hope that crude oil does not breakout above $75. I just paid $45 to fill up my car. 

The team at High Chart Patterns, which offers stock newsletters, wrote in to contribute some key tips on trading.

"1. When you feel most frustrated at missing moves, you are most vulnerable to losing money and trading in a self-destructive manner  (hereon called "trading on tilt" to quote Charles Kirk from the Kirk Report).    Do not let it play with your head.  Every trade is fresh. 

2.  Do not overthink or get spooked – stay as close to neutral as possible.  Don’t predecide anything, just look for your conditions to be met. Calmness is everything in this profession – in the technical setup system itself and in your own emotions.

3. Remember many  big losses have come after innocent small initial losses, and then from attempts to make up that loss and frustration – that is when one forces trades –  lousy setups with no volume, chasing spikes or even worse, following other people’s trades. 

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Bonanza C., a member of The Bull Trader Forums, and the blogger at the Yale Short-Term Trading Group, wrote in with his thoughts on market sentiment. He points out a lot of good concepts you should employ to improve your trading system.

"As an investor, you should always be looking to minimize your risk and maximize your returns. For a short-term trader, one way of reducing risk is determining the overall market sentiment in the short-run and trading with the crowd. Three out of every four stocks will be up when the indices are up, and three out of every four will be down when the indices are down (don't ask me where I got these numbers, it's just a saying I've heard). Even if the numbers aren't right, you can't argue with the fact that the majority of stocks will be up when the indices are up, and vice versa. Therefore, determining the overall market sentiment will drastically reduce your risk and increase your chances of entering a successful trade.

Another way of decreasing risk is determing the trend of an industry. You'll increase your odds even more by getting into a company in an industry that has been performing extremely well in a bull market. A good example of this are the commodities that were on an incredible rise in the beginning of the year. If you were able to notice the sharp rise of industries such as gold, silver, and steel, you're probably a very rich man right now (unless of course you held on through the commodities drop in the last month).

Finally, you can decrease your risk even further by finding the leading stocks in hot industries in a bull market. These are stocks that are hitting 52-week highs and are in strong upward trends. There is always the chance of the stock finding a top and reversing, but as many swing traders say, you should "buy high and sell higher". If you look at Apple in the last 5 years, you'll notice that its upward trend was largely undisturbed for the last two years, with just a small hiccup in early 2005.

If you follow these steps, you'll drastically reduce your risk while increasing your return. Currently, I'm largely short in this bear market. Personally, I see no reason to go long on stocks with the Fed hike looming, even if the stock looks promising. If you can trade with the crowd, you'll be able to protect your hard-earned gains, perhaps even build on them."

 -Bonanza

I learned this trick from "darrelldemello" from the Yahoo message boards. Basically, it seems that ADVFN has a nice system in place which allows you to see the number of shares bought at the ask and the number of shares sold at the ask.

If you can find strong divergences in the net volume and price, it can usually hint at pro-traders accumulating stock. For instance, if on one day 5mil shares are bought at the ask and 3mil shares are sold at the bid, the NBV (net buy volume) is 2mil shares. Naturally, since the NBV is positive, you would expect to see the stock trending up on that day. However, if you see the stock trending down or flat-lining on that day, then you have just spotted a valuable divergence.

This kind of divergence usually occurs when professional traders (who want to accumulate a stock) hammer the bid with sell orders whenever the stock tries to run up. Then, they place buy orders to catch all the shares that nervous retail traders are selling. It never hurts to buy the same stocks as the pros!

To try this system yourself, sign up for a free account at ADVFN. Then log in and click on the "Trades" tab and type in the stock of your interest.  You will then be able to see the buy/sell volume. ADVFN is the only service I know of that has this kind of info.