How To Beat The Bear Using ETFs

The market has rallied and many investors are wading back into the market, but there is still a long, tough road ahead for equities and the exchange traded funds (ETFs) that hold them.

Are we embarking on a continuation to the painful sideways bear of 1968-1982?

As history has indicated, stocks may not be the best road to take for an investors, but the lure of the “Wall Street Hype Machine” brings many back to the single stock trading table, Paul B. Farrell for MarketWatch reports.

Why are stocks looking lifeless these days?

• Bonds have beaten stocks by a factor of 11 times from 1981-2009. Listen closely to Forbes columnist Gary Shilling’s analysis of the past 28 years. In his Insight newsletter, he compares the performance of the S&P 500 stock index to the bond market. If you were in your 20s and just out of college in 1981 and you started adding a hundred more dollars each and every month using Shilling’s zero-coupon strategy, you’d be enjoying retirement today.
• Stocks have lost about two-thirds of their value over the last decade, meaning that buy-and-hold is no longer working. In mid-2008, the Dow Jones Industrial Average fell to levels that made it apparent to investors that their portfolios had been idling for eight years. The S&P 500 is currently below where it was 10 years ago. Who can afford to lose that kind of time?
• A study by Rob Arnott, the father of fundamental indexing and a research titan, revealed that in the last 40 years, from 1980 to 2008, an investor in 20-year Treasuries, rolling them over every year (using proceeds from maturing bonds to buy new ones), beats the S&P 500 through January 2008. Going back to 1969, bond investors still win.

How long will this go on? Occasional short-term cyclical bull markets and dead-cat bounces could continue to take the economy, market and taxpayers on an uncertain ride. How can an investor cope with this?

While bonds would have returned better in recent years, the past is no indicator of the future. Buy-and-hold certainly isn’t working, and history is showing that investors need to take a more active approach to their portfolios.

One way to cope with these bull/bear cycles is to follow trends. Many markets and areas move along their own trend lines, and by looking for them, you can enter in time for any potential long-term uptrend. This also helps remove the emotions from your investing, which has damaged many a portfolio.

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