Income Finance

Archive for the ‘Investment Strategy’ Category

Silverleaf Financialis an private firm located in Salt Lake City, Utah. The company focuses acquiring performing and non-performing whole loans secured by income producing commercial real estate in the U.S.  Silverleaf Financial works closely with the FDIC, Banks, Special Servicers and other financial institutions to purchase assets for the purpose of future monetization.  Organized in 2008, Silverleaf has purchased more than $ 450 million in face value assets.

SilverLeaf Financial purchases loans secured by a variety of commercial assets including:

Multi-Family
Retail
Industrial/Warehouse
Office
Hospitality
Land

The Silverleaf team possesses a diverse and seasoned background in real estate, development, asset management, leasing, commercial lending, accounting law, marketing and sales.  As a whole they strive to create a positive outcome for all parties involved.

Dwight Shane Baldwin is the CEO, and founder of Silverleaf Financial. Shane Baldwin was a successful Financial Advisor at Merrill Lynch prior to creating Silverleaf.

 Dwight Shane Baldwin studied business administration and marketing at Brigham Young University, Hawaii.

Shane Baldwin’s team of professionalsassesses each unique loan before purchase. Silverleaf Financial focuses completely on the requirements of the individual investor. Silverleaf Financial believes strongly in creating a win-win, with everyone they do business with.

In 2009 D. Shane Baldwin was invited to speak at the annual National Association of Industrial and Office Properties (NAIOP) Development conference where he presented his view on the topic “Buying Distressed Commercial Paper”.

D Shawn Baldwin is an entrepreneurial idealist. His belief, leadership and guidance are the main driving forces behind his striving financial company. As a CEO of Silverleaf Financial Baldwin has helped in achieving an extraordinary rank in business world. Baldwin prides himself in his work ethics and financial knowledge.  D Shawn Baldwin has operated managed several profitable organizations.

D Shawn Baldwin is an entrepreneurial idealist. His belief, leadership and guidance are the main driving forces behind his striving financial company. As a CEO of Silverleaf Financial Baldwin has helped in achieving an extraordinary rank in business world. Baldwin prides himself in his work ethics and financial knowledge.  D Shawn Baldwin has operated managed several profitable organizations.

D. Shane Baldwin is the originator of Silver Leaf’s three branches: Silver Leaf Financial, Silver Leaf Asset Management, and Silver Leaf Real Estate.

D. Shane Baldwin is the originator of Silver Leaf’s three branches: Silver Leaf Financial, Silver Leaf Asset Management, and Silver Leaf Real Estate.

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As a new year, including new trends and styles also come in the picture. In many parts of life, a note of these changes and transitions. The product range is no exception, new emerging techniques and one of them is real estate investment in the Internet.

And ‘common to think that real estate is about to hit a bumpy road, in particular, the recession and the current state of the environment. It ‘also expected to continue in the coming years,’ Till the financial crisis, a curse to be removed. It is said that there will be endless calculations of available resources, and increasing project costs. Professionals claim that property values ​​fall and foreclosures cannot be stopped. The field of commercial real estate is said to be, at worst, the last of the Great Depression 1991-92. Even if the forecasts are bad signs that not everything is downhill.

Property experts are finding ways to reduce the impact of the crisis for the industry. Since the current trend is to take things online, even if the property sector adjusted. People join cyberspace marketer’s gain more exposure via the World Wide Web.

The Internet is now the street. This is the day off to get the latest events, shopping, finding the best activities and all necessary information about everything that needed to be known. As such, for goods industry to develop the Internet is among the first to see all available media. This fact shows the importance of having a life on the Internet for your real estate. You would also need to be updated on all the techniques in the online industry.

Recent trends involve getting representatives of real estate online. Agents need to influence their customers through the World Wide Web to market properties. This trend suggests that potential customers are created based on how brokers sold online, making it the most important technique in the world of business ownership on the Internet.

It requires agents to be successful in the real estate market daily to ensure that they are aware of all the latest market values ​​and trends. The way to do this is through visits to specific search criteria, and RSS feeds.

Write a blog is one of the important techniques developed in the past in real estate. Via blogging, representatives of the property you will find information about the properties that were once for sale. This is yet still only works as part of Internet mail order sales.

Create a strong Internet presence and a reputation for big trend in the past. It is also the number of share capital. This is a part of it, because the power of social networks is a human enterprise. It ‘so important that you create a link of social capital and Internet connections with people who have the best connections in the industry.

Due to the collapse of global finance, but have become more difficult for the world of real estate. However, due to modernization and development of online real estate, there is still room for a positive future. The best thing to do is go online.

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If you have a 401k plan from your job then you must wonder what is it and how does it work? In your retirement account you will notice a lot of names which are called mutual funds.

These mutual funds are a collection of many companies such Walmart, Exxon, Verizon, Apple and even Google. There are hundreds of companies in each mutual fund. The word mutual fund means that the stocks of these companies are bought and sold in the stock market. The word stock means it is a certificate of the company. Each company issues millions of these certificates. Yes, they are just paper but it a legal document of ownership. You have to own more than 50% of these stocks to have any power of a company.

In your case since you are employed with a company, you do not have to worry about controlling a company. The employee of a company with a 401k plan is just worried about not losing money in their retirement account.

When you get your statement every three months you need to look at it and see the change in value. The mutual fund names on your statement can be viewed on the website from the company that offers them. This way you get a better understanding of what kind of companies are in the fund.

I have done this since 1994 so I do have a clue on what I am talking about. There is no reason to feel like this is the most complicated thing in the world. Mutual Funds are a group of stocks from many companies. You only have to worry about one fund and not one stock. Investing in stocks is too risky because it is to hard to find the one company that doubles in price.

To pick the best mutual funds in your retirement account is to look at ones that are performing the best over the past 6 months.

These are the leaders at the end of 12 months. Become familiar with the S&P 500 Index because this considered the bench mark for the over all market. The S&P 500 Index consist of 500 biggest companies in the world. The same companies in your mutual funds are in this index.

75% of mutual fund managers do not beat this index on a long term basis. The S&P 500 Index is known as the stock market because of its more established companies. Other indexes such as the Dow Jones and Nasdaq mimic the direction of the S&P 500. If you want to save the value in your retirement account then you need to become active. There are countless strategies that offer advice. I have the best one I consider or else I would not have wrote this. If you are serious about protecting your retirement funds then it would be in your best interest to read the information I provide on my website. No one else will tell you the way it really is except me. Know the understanding for a bear market.

When you look at any stock chart, the time frame has to be set on month to month and not day to day. The by month period will eliminate all the zig zags you see in the chart. This should come by as common sense and needs no explanation. Believe it or not, this is the first step to understanding the stock market. Look at any chart over the past 12 months using the month to month price and not the day to day price and you will see the stock market trend.

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Part 1 of 5: Rehabbing Houses

This posing will mark the beginning of a 5 part series in which I will discuss 5 separate real estate investing strategies, along with the benefits and drawbacks of each. There are hundreds of ways to invest in real estate. It is very important in choosing your investing strategy that you consider the time, money, and effort you’re willing to invest. Also make sure to be realistic about your experience level, construction experience and ability to manage others.

After watching Flip this House, real estate investors think that rehabbing houses is the only real estate investing strategy out there. Although flipping houses can bring substantial profit, you can also loose a ton of money. Let’s look in detail at what’s involved.

So you have decided to step in to the big leagues and start flipping houses? First be sure to carefully evaluate your personal commitment to the projects, time available to invest into them and willingness to liability exposure. Having bought and sold over 150 houses, I am here to tell you that rehabbing houses is one of the most difficult investing strategies, but can also be one of the most lucrative.

Estimating Repairs– Okay, so you’ve heard about a great investment property that needs work. Now what? Even though your realtor or friend thinks it’s a great deal you need to run your rehab costs in details. If you’re not experienced in construction get a couple bids from some reputable contractors to give you an idea of rehab costs. Be sure never to get them out of the yellowpages, but instead use websites like servicemagic.com or get referrals from other investors. In generating rehab costs, there are some great repair estimate sheets online you can get to help in the process. In estimating repairs for house flipping it also helps to think about the 5 major systems that may need to be replaced! Roof, windows, plumbing, electrical, & HVAC. Also always make sure the foundation is in good shape as rehab projects with bad foundations are impossible to re-sell. Home buyers expect these major systems to be new, or fairly updated. If they are older than 15 years plan to update them. We have a standard cost for each based on our are. For example, we can replace HVAC systems for $ 5k or less and windows for $ 200 each.

Learning to estimate repairs can be frustrating but is an essential part of real estate investing. You’re not going to be perfect at it overnight, so have patience with the learning process. By utilizing contractors, you can learn to see things how they do and it will get easier with time.

Obtaining Financing

Getting financing to rehab houses is harder now than before the crash, but can still be done. The preferred method to buying houses for rehab is cash or using an equity line of credit. This way if you are dealing with a motivated house you can close right away without the hassle of jumping through a lenders hoops. If this isn’t an option, you can find a private lender to fund your real estate deals. By offering friends, family, and anyone you know 8-10% interest you should be able to raise the money. You can set it up to defer payments to them until the rehab is complete and you sell the property. You will give them a first mortgage and personal promissory note in exchange for the money. This means they get the house if something goes wrong and can come after you personally.

If you’re planning to get financed by a bank for rehab projects, you will likely need to contact at least ten in your area until you find ones, so don’t be discouraged at first. Don’t waste your time with big banks. Instead focus on the small community banks. If you plan to get financing for rehab projects and real estate investing in general, you will first need to assemble a loan package which lenders will request. It should consist of your last two years personal tax returns, personal financial statement (that shows all your assets & liabilities), a business plan, a cash flow statement (if you currently own property), & a brief description about yourself and the project you are applying for financing on as a real estate investment.

Managing the Renovation:

Flipping houses isn’t an easy job. The process of managing the rehab itself will require excellent organization & people skills. It is also very important that you learn how to estimate repair costs as quickly as possible.

The majority of beginner rehabbers that I know loose their shirt by overspending at the beginning of the job and over paying for the work. A lot of them also get ripped off by paying money upfront before work is done.

Follow these rules to insure you succeed at rehabbing houses:

1.)  Never use a contractor that isn’t recommended by an experienced rehabber or have great reviews online or references.

2.)  Never get a contractor for rehabbing houses out of the yellowpages.

3.)  Never pay money upfront to a contractor. (Instead you can pay the supply house directly for the material orders)

4.)  Always use a contract between you and the contractor that has a hard date that the job must be complete. This must include a per diem penalty for everyday that the job is not done. This penalty amount will be subtracted from what you owe the contractor at pay day.

5.)  Never pay a contractor more than 70% of what you owe him until the job is 110% done!

6.)  Get proof of workers comp & insurance before awarding the job. Keep this paperwork & call to make sure the policies are valid.

7.)  Never, ever break any of the above rules about flipping houses or you’ll be very sorry you did.

If you follow the above rules about rehabbing houses, you will be well on your way to doing a great job. You must have first gotten a great deal on the house. Make sure to join my email list here as I am always sending out new tricks to find houses not listed on the market with a realtor.

Project Management

In rehabbing houses, you or someone that works for you will need to manage the project full time. This means being on the job everyday, ordering materials, working with a designer, getting draws from the lender, paying contractors, keeping the job site locked up every night, ordering dumpsters, communicating with the neighbors, keeping the job site clean, getting bids from contractors, and much, much more.

In closing, rehabbing houses can offer a huge return, but also be a lot of work. You might make money, you might loose money. I offer a Mastery Fast Track Program for serious investors that offer a full rehabbing system and unlimited support throughout the process. You will more than make up for the cost with the money you save on the very first rehab. It’s critical to have a highly experienced partner on your side that can walk you through the process, that you can lean on anytime.

Don’t gamble. Insure your success and sign up today! Make the commitment to your career as a real estate investor and find out what it’s like to have the freedom to build your own house flipping business. Imagine showing your friends that 6 figure. Check that you made on your first rehab deal!

Stay tuned for part 2 next week – Rehabbing Houses for Rental!

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If you’re looking for a short term savings solution, there’s no shortage of banking products available to meet your needs.  Money market accounts, savings accounts and CDs (certificates of deposit) are all common and popular short term investment vehicles.  Other products, such as municipal bonds, treasury bills and I-bonds may be available, but when you’re looking for low-risk savings strategies that still allow you to get a return on your investment, it’s hard to beat CDs.

Getting the Best Rates

Many banks claim to offer competitive rates, but some go beyond the industry standard.  The online bank, Aurora Bank (Equal Housing Lender, Member FDIC) offers some of the highest CD rates available.  Of course, to get the best rates, you’ll either need to deposit a large amount, or keep the CD for a longer length of time (called the maturity date).  Either (or both) of these options can help you get the best possible CD rates.  Maturity date lengths and deposit amounts can vary.  CD timeframes range from 6 months to 5 years, and deposit amounts vary, but it’s best to keep a minimum balance of $ 1,000 in order to avoid any extra fees or account maintenance charges.

Making Money on Your Money

One of the best reasons to consider CDs for short term investments (anything five years or less is considered short-term), is simply because you get the benefits of compound interest.  Every day, the bank pays you interest on the money you’ve deposited in the CD, and at the end of the month, this interest is added to your account on top of what you’ve already deposited.

So you’re essentially making money on the interest that the bank is already paying you.  

Safety and Security

Another reason why CDs make ideal short term investments is because of their safety, security and stability.  Unlike some other banking products (particularly investment-related products like stocks and bonds), CDs are covered by the FDIC – a government institution which protects your deposits up to $ 250,000 per account, against the highly unlikely event that the bank itself goes bankrupt.  It’s worth noting that since the FDIC was created after the Great Depression (credit unions have their own federal institution called the NCUA), not a single person has lost money in their account due to bank insolvency.  

In uncertain economic times, it pays to have money invested across a wide spectrum of banking products.  As you may already know, different products produce different results according to your risk tolerance level, amount to be deposited and how long the money is kept with that particular product.   With this in mind, it’s a good idea to speak with a banking professional about how to use CDs to reach your short term savings and investment goals.  Considering today’s competitive rates, CDs are a low-risk way to keep your savings secure for up to five years.

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If you are just starting to get into rental property investing, the first thing you must do is to formulate a strategy. There are 3 main steps to do this:

• Determine your objective and time horizon
• Determine your targeted property type
• Determine your target area

STEP 1: DETERMINE YOUR OBJECTIVE AND TIME HORIZON

The first consideration is your objective and time horizon, both of which go hand-in-hand. Are you looking to turn a quick profit by holding the property for 1 year and then flipping it? Or is your objective to build long-term equity by holding and renting out the property?

Really, the only thing to consider here is your access to capital, which includes cash on-hand as well as access to non-bank loans. Unless you have access to a lot of capital, or you are operating in a white-hot real estate market, you’ll probably find it difficult to execute a short-term flip strategy because you must factor in holding and selling costs.

STEP 2: DETERMINE YOUR TARGETED PROPERTY TYPE

Next, you must choose your preferred property type.

You can be a real estate investor in a variety of ways, but for “small time” investors 2-4 unit multi-family properties generally make the best choice. This is because rental income tends to be substantially higher by virtue of having multiple units, yet overall expenses are only slightly higher than, for example, a single-family home. Plus, you will avoid commercial status as well as the extra inspection scrutiny that properties with more than 4 units must deal with.

Usually, old properties (50 or more years old) in older neighborhoods offer the most value. Additionally, you’ll want to focus on properties with multi-bedroom units.

Not only do 2-3 bedroom units command more rent, but they also tend to have a more stable tenancy compared to 1-bedroom units.

STEP 3: DETERMINE YOUR TARGET AREA

The third key factor to determine is where you will purchase your rental properties. You’ll want to focus on a town or a county that is no more than a 30-minute drive from your home. Anything farther than that is too difficult logistically and will consume too much of your precious time. I also recommend focusing on areas that are upper-lower class, as properties in these areas are relatively cheap, tenants are plentiful, and the “clientele” is better than middle-lower class areas so management is less stressful.

The best way to find your target area is to grab a map and drive through all the towns within a 30-45 minute drive from your house. As you drive around, look for lower-tier neighborhoods that are “in transition,” where houses are being fixed up and property values seem to be rising. Stay away from areas in complete disrepair.

This driving expedition should allow you to narrow down your choices to just a couple of towns. You can then look at multi-family listings within each area (use a site like www.realtor.com) and compare the list prices with those in other, nearby towns to get a sense of the affordability of investing in that specific target area.

PUTTING THE PIECES TOGETHER

That’s all there is to it. To sum up, the overall strategic framework is as follows:

• Determine your goal (monthly income, retirement, etc.), and how many properties you must acquire to achieve it. Plan to hold and rent each property for at least 10 years.
• Pick an upper-lower income town or county no more than 30 minutes from your house.
• Look for 2-4 unit non-owner occupied older rental properties with multi-bedroom units.

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Building Industry Credit Risk Analysis Section

First, the risk of building materials industry

(A) the risk of cement industry

The risk of long-term sustained tightening. 2008 1-5 month CPI rose 8.1% in May CPI fell to 7.7%. After the earthquake are still raising the deposit reserve ratio indicating the state adhere to tight policy stance. If the actual fixed-asset investment continued to slow down will adversely affect the cement industry, cement industry, even before the end of the business cycle.

Coal price rise risk. Coal prices soared and greatly increased the cement industry cost pressures, large enterprises competing construction waste heat power generation project is in response to high energy prices. Therefore, the impact of rising coal prices for different sizes of cement enterprises is asymmetric, on waste heat power generation projects with a relatively large-scale enterprises will be less, for small businesses is fatal.

The risk of irrational competition. Large-scale expansion will bring more business competition. Especially in spite of long-term industrial distribution, competing projects, expansion of production capacity in areas such competition more prominent, now is the best classic Sichuan, Hunan is a.

(B) the risk of the glass industry

The main risk is that heavy oil, soda ash and coal price risks. Without exception, these three elements of glass production was up, and all gains amazing. In addition to a price drop of soda ash is expected, the heavy oil and coal are also likely to continue rising.

The risk of frequent cycles overlap. Technical barriers to low flat glass industry, once the industry boom in the high degree of point production can often be expanded within a year. That the consequences of blind expansion of production capacity is overcapacity, oversupply, lower prices, the industry into a downturn.

Second, the appreciation of RMB

Appreciation of the RMB in terms of impact on the building materials industry as a whole is not, but the company, this will make it a certain decline in profitability.

(A) Cement

RMB appreciation in the short term for the cement industry has little effect. China is the world’s largest cement producer, however, the scale of the present export, export part of the small proportion of the total, therefore, exports for the entire cement industry has little effect. Together with various cement raw materials and energy procurement in China, RMB appreciation for the basic domestic sales of cement within the production had little impact.

High against the dollar, but is expected to continue to rise, coupled with low interest rates and low cost, making the continuous influx of foreign capital basis of domestic industry, cement industry will face a second investment upsurge.

First, financial capital (Morgan, Goldman Sachs, etc.) remains positive appreciation of the renminbi, cement industry and capital invested large, long-term returns considerable financial capital must meet the requirements. Generally used to buy into the investment industry leading the way, now the investment, such as JP Morgan Investment Conch, CDH landscape, Goldman Sachs and other investment Mengxi.

Second, industry capital (Lafarge, Howe West Union, Heidelberg, etc.) long-term bullish on the Chinese market and high returns. Opportunity to take advantage of macro-control, holding areas for using the purchase method of quality cement enterprises, such as Western Union Ho acquisition of new century China, Lafarge acquired two-horse, the acquisition of Heidelberg Yuexiu so.

(B) glass

Relative to the cement industry, exports of the industry is relatively larger, the renminbi appreciation on trades have been affected. Perspective on specific companies, export-oriented enterprises (such as Fuyao) the impact on a larger share of its domestic market and import processing enterprises storm is relatively small. At the same time, the processing of glass to maintain a substantial increase in exports, will also be caused by revaluation losses.

(C) steel

RMB appreciation on the best interests of the steel industry is to reduce the procurement cost of the steel industry: At present, about 40% dependent on imported iron ore, iron ore-based raw materials and to account for 30-40% of the cost of steel; benefit of the listed company including Baosteel, Wuhan, Maanshan, Jinan Iron and Steel, Dragons, etc. to import iron ore as the main raw material of the company, the company’s iron ore imports and domestic procurement procurement is basically the ratio of 7:3, the other, such as Anshan Iron and Steel, the new steel Such vanadium-based company owned mining company, was less affected.

RMB appreciation on the negative effects of the steel industry is to increase imports of steel products, while reducing exports. Of course, this negative impact is medium to long term, in the short term spread by domestic demand and domestic constraints, this negative impact can be ignored: First, the current domestic steel demand remains strong, exports, compared to just 4% share of production. From the product structure, exports mainly low value-added products such as wire and the general board, imports Zeyi domestic production or capacity planning can not be of high value-added products, including automotive sheet, ship plate, etc.. Second, the current spreads at home and abroad in more than 20%, even if the RMB is still not make up a spread. Medium and long term, with spreads narrowing, especially in the CIS prices are now closer to domestic prices, the prices of these regions has negative effect on domestic prices, while the RMB appreciation will increase this impact. For the specific impact of the company is negligible, because the steel industry, the ratio of exports of listed companies is very small.

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The volatile market and the inflationary times! What more is required to cause extreme annoyance to an investor? In this period of recessionary trends, inflation has turned out to be a decisive factor in share markets. The extent of rise in the inflationary trends will determine the future course of interest rates, which in turn will affect the share market performance.

Rising inflation is, as such, not bad for the share market, but the transition phase causes confusion in the minds of the investors. The starting point for an investor is critical. A slight error in the timing and the investor is likely to suffer heavy losses. If past trends are any indication, investors who entered the market subsequent to previous sharp declines, have reaped substantial profits over the following years. It is reasonable to assume that such an opportunity exists for long term investors from the recent rush for equity sell off.

Inflation initiates the chain reaction.

When it surges, shares of companies suffer, but not all! Increase in the commodity prices pushes up the cost of materials and corporate profits are affected adversely. But some companies, who own high sales figures, find their golden opportunity, through the inflationary trends, when they have no competitors.

An investment strategy in inflationary times could be:

For an investor, well-versed in the art of investment, whether up trends, downtrends, inflationary times or depression in the market does not matter. The market is volatile under all these conditions, the differences are only in degrees. Those who have the capacity for risks, take more profits in inflationary times, if they are day traders.

Such investors have up-to-date reports about the trends in the market, are seized of the issue of entry and exit times. But for a new investor, this is not a good time to make an entry in the market.

Be extra vigilant during this time. All the normal rules applicable to share trading hold good but with certain additional qualifications. Do not attempt to predict the market, but try to understand it. Be strict about the stop loss range that you have provided to the shares in your portfolio. Do not relax the self-imposed rules, succumbing to emotions. Make a thorough survey and research once again on all the shares at stake. Inflation works wonders in certain segments of the industry, and chance exists to make huge profits, provided you are able to spot such companies.

If you are doing online trading through which transactions take place fast, you need to be extra-cautious. During inflation, many factors affect share prices and this happens overnight. Issues like interest rates, high oil prices, GDP, change in the fiscal policies of Central Bank and the Government, have direct bearing on the market conditions. This is not the time to risk your entire capital on stocks.

Higher inflation leads to lower equity values. Interest rates rise. You get more money for the amount invested now. It is, therefore, logical to expect that for the amounts to be received in future, the value needs to be lower today. A higher return is possible if the share prices are lower or decline now. The aftermath of inflation like unemployment, varying interest and exchange rates-all these create uncertain conditions in the share market.

The prices of shares are directly related to the performance of any company. How the management of the company will take in its stride and function in the changed economic scenario is the main issue, which will have bearing on the share prices.

Inflationary times are testing for the share market. An investor develops mental blocks to invest in shares; he is unable to think freely and do normal trading.

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Let’s get started by concentrating on the S&P 500 – it is intrinsically an index of the 500 largest companies in America. Indeed, it is more. Contrary to popular misconception, the S&P 500 is not a simple list of the largest 500 companies by market capitalization or by revenues.

Rather, it is 500 of the most widely held U.S.-based common stocks, chosen by the S&P Index Committee for market size, liquidity, and sector representation. “Leading companies in leading industries” is the guiding principal for S&P 500 inclusion. We are starting here to achieve safety and diversity.

If you use the S&P 500 as your investment base you won’t have to worry if the CEO has resigned, the CFO has just been indicted, the stock has missed its forecast or any number of things that make stock prices flagellate unsuspecting investors and traders.

You ask: How can you make money investing on the S&P 500?

Consider its graph, the white, bottom most curve on the chart. As you can see, the S&P 500 goes up and down similar to stocks and hasn’t done so well over the past 3 years.

Wouldn’t we do better with a mutual fund? [Actually, you're getting warmer.]

According to the Motley Fool, “During the 1990s, the S&P 500 has provided an annualized return of 17.3%, compared with just 13.9% for the average diversified mutual fund.” Over the past 3 years only 10 mutual funds had more than a 12% total return [data through 6/4/2010 from 12,392 funds, Morningstar]. You can see that the S&P 500 has not done well, but you would have actually done worse using mutual funds.

Instead of considering mutual funds I’m going to restrict our consideration to just two ETFs, i.e., SSO and SDS. I said simple; this is simple.

We’re going to invest in SSO when the market is rising and SDS when it’s falling. Both SSO and SDS are based on the S&P 500. They track its traded index, SPX. [You have to trade SPX because the S&P 500 is an index that isn't traded.] The SPX is among the most traded equities and is also one of the most liquid. As an investment it brings diversification.

SSO and SDS are mirrors of each other. Whenever SSO rises the SDS falls, and vice versa. This allows us to trade in rising and falling markets. Simply, pick the correct ETF.

These ETFs have one other unusual property. They move twice the speed of the SPX; they are leveraged 2 to 1. [Proshares has a number of similarly behaving ETFs. They are called Ultra ETFs.]

You said: This would be a safe investment strategy! These are leveraged! Isn’t it safer to invest in sound American stocks?

Rather than give a large list of recently failed stocks, I decided to find if there were any stocks among the current S&P 500 that I would like to have held over the past 3 years. Only 2 emerged, Family Dollar and Autozone. More than 15% of the S&P 500 had more than a 75% draw-down and an additional 35% had losses over 50% at some time during the 3 years. These statistics do not include companies like Enron and Lehman that are no longer included. If they were included these statistics would be much higher.

I don’t know about you, but I’m not much of a stock picker. I want something truly safe. If you are comfortable with your results trading stocks, don’t bother reading further.

What about investing in utilities?

When I began investing, my Dad told me that utilities were always a safe investment. They paid a good dividend that never went down. Their customer base is locked in. Their rates are determined by the states and these always increase. What could be safer?

During the last 3 years, Duke Energy fell over 40% from a high of 20.66 to a low of 12.39. Over the same period, the index of gas utilities had a high of 33.84 and a low of 20.11. Electric utilities fared worse falling from a high of 40.01 to a low of 20.85. Even utilities don’t look safe anymore.

From my point of view, it’s the story of the turtle and the hare. Stocks behave like the hare. You cannot predict in which direction they are going to run.

These two ETFs, SSO and SDS, in comparison are turtles; admittedly turtles with racing stripes. At this point we do not have anything more than a rough plan for investing in the S&P 500. This is not enough to qualify as an investment strategy.

We shall begin to upgrade this plan into a practical trading strategy. First, we need an unbiased indicator to determine on which ETF we should place our money, SSO or SDS. Any day, the majority of pundits on CNBC will tell you the market is going to rise. But on the same day, many of their pundits will provide reasons why it will fall. So, you cannot rely on them. Also, the Futures, prior to the Open, seem no more reliable for choosing either SSO or SDS.

After many years of trying, I developed a market timer that combines the market movement of the SPX with market sentiment. I call this the SPXTimer. There are many market timers available. I’ll let you be the judge which to choose.

They are invaluable for making a well guided decision about which ETF to select. Mine gives you three choices. When it’s bullish take SSO; bearish SDS and when it’s neutral stay in cash. What could be simpler?

The red curve, third from the top judging from the right hand side of the chart, shows the results of trading SSO and SDS from 9/12/2007 until 5/5/2010 only using the SPXTimer. $ 10,000 invested on 9/12/2007 grew to $ 13,737. Most investors and funds didn’t do that well over this difficult period.

I think you will agree, these results are not very good in terms of what you would hope to achieve. Look at the yellow oval in the middle the graph. During that interval of time, the investment fell from a high of $ 14,469 down to $ 11,158. That’s a big hit. We would like to sleep well at night; that fall would make sleep very difficult.

Sometimes these ETFs do not move in sync with the market timer. A little patience is required before charging into the market. I added a mild momentum constraint to the strategy to ensure the entry is in sync with the timer. The ETF’s momentum, not necessarily the price, is required to be rising over 2 days. [A service bureau provides me with this information.] Sometimes this constrains delays entry for several days.

The blue curve provides the results of adding this constraint. Here, based solely on the S&P 500, my market timer and an entry constraint, the $ 10,000 investment grew smoothly to 16,525. That’s over 20% per year! There were pull backs, but you could sleep soundly.

I was still concerned with giving back profits. After each big run-up in profit, it seemed there was a comparably big pull back. Many investment managers recommend adding to a position as it is rising in value.

I decided to try subtracting from the position size as the profit rises. If timed properly, this might reduce the amount of profit given back. Plus, it would reduce the risk while adding some of the profit to the bank. To do this, I decided to incorporate the following Money Management with the two strategies that were in place.

Say you started with $ 10,000. The idea is to keep the money at risk between $ 9,000 and $ 11,000 [+/- 10% of the initial investment].

Whenever your equity grows over $ 11,000 sell enough shares to withdraw $ 1,000. This should reduce your money at risk to under $ 11,000. The next time it appreciates over $ 11,000, do it again.

If, on the other hand, the investment falls below $ 9,000 add $ 1,000 worth to the ETF investment.

The results are remarkable. This investment, the yellow, top-most curve, grew to $ 17,780. That’s close to 30% annually; not bad for a turtle! The chart doesn’t show this statistic, but 75% of these trades were winners.

I repeated this test on three more broad based indexes: the Nasdaq 100, S&P Mid-Cap 400 and the Russell 2000 changing only the two ETFs. Each did better. The statistics of these investments, starting on 9/12/2007 with $ 10,000 and ending on 5/5/2010, are shown in the table below. All data is based on back-testing, not actual trades.

The basic plan: buy one of these ETFs when bullish and the inverse ETF when bearish, or stay out of the market in cash, is as simple as it can get. The SPXTimer brings order and safety to the investment because you know whether to buy the bullish ETF or the bearish ETF. The entry condition, combined with this money management strategy, will improve your investment results beyond what you might hope to achieve with stocks or mutual funds – with much less risk. Now isn’t that what you wanted all along?

Footnote
You may be wondering about the choice of dates; particularly since on 5/6/2010 the Dow fell over 1000 points in less than a half hour. Many of these ETFs were first introduced in 2006 and 2007. As a result, data was not collected for the SPXTimer prior to mid 2007. The start date corresponded to the first change to a bullish signal. On 5/5/2010 the timer signaled a close for all bullish positions. Prices in the table reflect the Open of 5/6/2010.

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Exchange traded fund investments or ETF investments hold assets such as stocks, commodities or bonds and are traded in a similar fashion to stocks. They are used as investing vehicles that can hold hundreds of companies under one fund. ETF investments are considered attractive because of their low costs, tax efficiency and stock-like features.  However, there are two ways to utilize ETF investments.  Here we’ll go over passive and active ETF investing.

Passive ETF Investments

ETF investments were created in the early 1990s to provide users a single security to track an index and are capable of buying and selling stocks throughout the day.  By using ETF investments, investors are, in theory, able to buy and sell securities that make up an entire market in a single trade.  Because of this, investors are given high amounts of flexibility to buy or sell at any time throughout the day.

This is an advantage for investors who prefer to buy and hold or prefer to manage their investment themselves. The investment strategy of buying and holding is considered passive, but still effective. Through using a passive approach, traders can track a stock index and earn as the index earns.  This hands off approach means lower fees for investors, but less control. Because of this ETF investments can provide a convenient and low cost way to implement indexing or passive management. 

Active ETF Investments

For many investors, the returns of a passive ETF investment strategy are not enough.  Actively managed ETF investments have the ability to earn higher revenues.

The use of intraday trading allows investors to track the market and trade, much like a stock but with a higher possible benefit. These include market timing, sector rotation, short selling and buying on a margin. In comparison to passive investing, active investors do not track a stock index but attempt to earn more beat the index. Meaning all of the active investment strategies used in stocks can be used in ETF investments. 

Are you interested in ETF investments? Learn more at InvestorPlace today! 

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