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3 New Year’s Resolutions An ETF Investor Can Keep

Here's a great, and achievable, ETF road map for a successful 2014

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The first Monday after the New Year’s celebration is unofficially known as, “Blue Monday.” Apparently, media outlets are crediting a United Kingdom purveyor of protein drinks with coming up with a name for the most depressing day of the year.

Granted, it may sound as though I am making this up or perhaps pulling it from an episode of the television series, “The Incredibly Poor Decisions of Todd Margaret.” Nevertheless, there seems to be support for the notion that we are particularly depressed on the initial day of the first full week back to work after the holidays.

Upbeat Drinks claims that its proprietary ‘Upbeat Barometer’ analyzed over two million tweets to make the determination. I’m skeptical. Then again, a number of cold weather football fans (e.g., Cincinnati, Philadelphia, Green Bay, etc,) are simultaneously dealing with frigid temperatures, bitter defeat and having to make good on those lofty resolutions. (Note: I myself have already found it exceptionally challenging to meet the 10,000 step goal on the “Fitbit” that I received for Christmas.)

Of course, some resolutions and goals are much harder than others. Here are 3 investing goals that ETF enthusiasts should be able achieve in 2014:

1. Stop the Bleeding. “Hold-n-hope” advocates and “buy-low wannabes” predictably malign my approach during the height of bullishness in equities. Have you ever noticed how these people disappear during panics, crises and/or collapses?

When you hold, you have no control over the outcome over your investment(s)… you’re hoping that the markets will come back. Ask dot-com NASDAQ investors about the 14 years that they are still waiting to break even. Meanwhile, deep discount value types need look no further than Bill Miller, formerly of Legg Mason Value fame. It only takes one bad call to ruin it all.

There are alternatives, of course. My approach for the last 25 years has been to control what one can control. Lower the total portfolio costs, increase the total portfolio yield without “chasing yield,” and secure each investment outcome. There are only four: (1) a big gain, (2) a small gain, (3) a small loss, (4) a big loss. It’s worth noting that managing risk in investing — like insurance — boils down to a willingness to pay the premium (i.e., a small loss) to avoid a disaster (i.e., a big loss).

Mathematically, you will spend far too much time trying to recover from bearish calamities like the ones experienced in 1929, 1930-1932, 1937-1938, 1939-1942, 1946-1947, 1961-1962, 1968-1970, 1973-1974, 1981-82, 1987, 1990, 2000-0002, 2007-09, 2011, etc.

Keep in mind, I am the furthest thing from a doom-n-gloomer. I participate in market-based investing with a recognition that long-term success requires a plan for knowing the circumstances under which I might reduce exposure to an asset or asset class. It follows that — if you want to stop a trickle of blood from becoming a death blow to your jugular — determine how you will use stop-limit loss orders, trendlines, put options and/or inversely correlated assets to insure your success.

At what point in 2011, 2012 or 2013 could you have limited or eliminated the drag of the SPDR Gold Trust (SPDR)?

GLD 200

2. Think Globally. A great many ETF investors have lost faith in international stocks, bonds and currencies. Perhaps ironically, the “lost decade” for stocks was a U.S. phenomenon from 2000-2009. Since 2010, however, the U.S. has been on a phenomenal outperformance streak that has left many feeling queasy about developed stocks in Europe and Japan as well as emerging equities in China and Latin America. The S&P 500 SPDR Trust (SPY) has cremated the competition, including Vanguard Europe (VGK), iShares Japan (EWJ) and Vanguard Emerging Markets (VWO).


It’s not just stocks either. Federal Reserve tapering uncertainty may have led to a total return loss of -2% for iShares Total U.S. Bond Market (AGG) in 2013, but investors fled many foreign bond possibilities as well. SPDR Barclay International Government Bond (BWX), PowerShares Emerging Market Sovereign (PCY) and Market Vectors Emerging Market Local Currency (EMLC) coughed up -3.6%, -10.3% and -10.4% respectively.

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