Avoid This Common Investment Pitfall
The Dynamic Wealth Report
September 29, 2008
Are You Making This Mistake?
This weekend, the entire world stood on pins and needles. Congress
worked feverishly on a $700 billion bank rescue plan. I was happy to see
our elected officials finally putting in a few honest hours of work. I
guess they realized saving the US banking system might be important.
Of course Congress is working hard this weekend. They’re supposed to
start their winter recess today. They’d scheduled a little break,
nothing big. They’re just taking the rest of the year off. Nice work if
you can get it huh?
So, back to the $700 billion rescue plan.
The funny thing about this legislation, many people aren’t sure it’s
going to pass.
But that’s the least of our worries right now. All this news was
overshadowed by Citigroup trying to rescue . . . I mean buy . . . part of
Wachovia. Then concerns about European banks started hitting the news. Fortis, a huge European bank, received a $16 billion cash infusion from
the Netherlands, Belgium, and Luxembourg. Then news hit that Bradford &
Bingley, a major UK mortgage company, would be nationalized.
-------------Sponsor-------------
Where Can You Turn $300 Into $1.3 Million Right Now?
Our own small-company specialist, Robert Morris, has found a
way to 'sniff out' tiny penny stocks on the verge of a major breakout. And
the timing for this has never been better.
You see, the system takes advantage of an obscure SEC regulation that
sends penny stock prices through the roof.
We've seen some stocks gain 852%... 5,450%... even 17,496% in no time
flat.
Click here
for the details...
-----------------------------------
We warned you.
Long time readers know how difficult the markets have been. They also
know I’ve been warning people to hedge their portfolios. At no time has
that become more important than now. But, there’s a huge mistake that
many investors make.
What’s that mistake?
It’s not knowing what you’re buying.
Now, I’m not just talking about doing due diligence and knowing about your
stock or ETF. It’s more than that. It’s knowing why you’re buying an
investment. Knowing what’s going to move it up or down. And
understanding how it will perform compared to other investments.
Let me give you an example.
Back in May, the Dow Jones Industrial Average was trading at 13,010. It
was a perfect time to hedge some of your portfolio. One easy way to
hedge is by buying gold.
Why gold?
Historically, gold is a counter-cyclical investment. That simply means
when the market’s doing well, gold goes down. And when markets are
falling, gold goes up. Investors tend to buy gold as a way to profit
when turmoil and uncertainty hits the market. Kind of like now.
Over the last few months the Dow has fallen considerably. On May 1,
it was trading at 13,010. As I write this, the market’s at 10,858. That’s a 16% loss in only 4 months.
Now if you’d hedged your portfolio by purchasing gold, you’d be doing
much better. Take a look at the streetTRACKS Gold Shares ETF (GDL). This
ETF actually purchases and holds gold bullion. When you buy the ETF you
get a piece of the gold they have in storage. Back on May 1, the
Gold Shares ETF was trading at $83.99. Today it’s up more than 5% to
$88.73. Not bad.
But here’s the risk. Instead of buying the Gold ETF you might have
bought a Gold Company ETF.
What’s the difference?
First as we discussed above, the Gold ETF buys and holds gold. The gold
company ETF, like Market Vectors Gold Miners ETF (GDX), buys and holds
shares of gold mining companies.
A huge difference.
The Gold Company ETF will move up or down based on the stock prices of
gold companies. On May 1, Market Vectors Gold Miners ETF was trading
at $42.65 a share. Now you can pick up all you want at $35.34 a share. That’s a loss of more than 17%.
Do you see why it’s important to know what you’re buying? If you bought
the wrong ETF your nice gain would have been a huge loss. And your
portfolio would not have been properly hedged.
Remember, it’s important to know not only what you are buying but why.
Hopefully you’ll avoid making the same mistake. Now if we could only
find a way to avoid the next mistake Congress makes . . .
• Automotive (up more than 5%)
Believe it or not, the automotive industry is one of the top performers
for the month. Lower oil prices have helped drive enthusiasm for
companies like Ford (F) and Toyota (TM).
Print
Page
Bookmark Us
Home | Whitelist Us |
Terms of Use |
Privacy Policy |
Contact Us | Security |
Site Map