In The Spotlight: A Perfect Financial Storm?

Over the past few days, I received several e-mails from readers voicing their concerns about a variety of issues which might affect their investments. The topics ranged from anticipating a worsening of inflation to diversifying into Canadian funds and when to shift assets into better performing areas.

Reader Scott’s email is typical. He writes:

Are you optimistic for the long-term health of U.S. markets? I see several trends that make me pessimistic: demographic trends indicate larger numbers of retirees and fewer numbers of workers; political trends indicate larger government therefore higher taxes; greater worldwide demand for raw materials, especially petroleum; declining strength of the U.S. dollar. It seems like all the elements of the perfect financial storm.

And if such a storm were to hit, how can the small investor find safe harbor?

Sure, all if his concerns are valid and you certainly could add a host of others including the scandals I referred to in yesterday’s post. The problem is that you don’t know if and when those events come about and what effect they might have.

This only way to observe potential changes is by following trends as they happen. That does not mean trying to forecast, it means to actually track various investment orientations as I do with my weekly StatSheet. Since all funds/ETFs are now ranked, it’s easier than ever to observe which investment classes move up and which move down in the ranking food chain.

As time goes on, you can easily see which funds/ETFs are worthy of your attention by the position they occupy. If you use these rankings to make your investment choices and combine that with our recommended sell stop discipline, you will have the best of both worlds without having to guess how future events may impact market behavior.

This will also limit your risk at the same time and, should the market go against you (and it will), you know exactly when to exit and either stand aside or re-invest in a sector that is moving up.

My point is that all the uncertainties that impact your investment life ranging from inflation, deflation, deficits, scandals, high oil prices, wars and many others will be immediately reflected in the price of the affected or underlying stock/mutual fund/ETF. That is reality, which you can measure and track without having to resort to guessing, anticipating or forecasting.

Forget worrying about the perfect financial storm, it may or may not happen. Learning to follow trends and acting upon them might be the only thing to keep you sane in an insane investment world.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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