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Pros and Cons of Dollar Cost Averaging

Many investment advisors suggest that the average investor should use a technique called dollar cost averaging when investing. This approach lets you buy fewer stocks when the price is high and accumulate more when the price is low. It is a disciplined approach that avoids trying to time the market. By setting an amount that you want to invest every payday, month, or quarter, you set up an investing plan that is reliable and likely to succeed in accumulating wealth over the years. This having been said, what are the pros and cons of dollar cost averaging?

What Does Dollar Cost Averaging Mean?

Investopedia provides us with a formal definition of dollar cost averaging.

Dollar-cost averaging (DCA) is an investment strategy in which an investor divides up the total amount to be invested across periodic purchases of a target asset in an effort to reduce the impact of volatility on the overall purchase. The purchases occur regardless of the asset’s price and at regular intervals; in effect, this strategy removes much of the detailed work of attempting to time the market in order to make purchases of equities at the best prices. Dollar-cost averaging is also known as the constant dollar plan.

For those with no skill or interest in timing the market, this is generally a good choice.

What is Dollar Cost Averaging in Stocks?

While dollar cost averaging is generally used for investing in stocks it can also be used for investments like buying CDs or treasuries. However, the approach works best for stocks. In fact, if you are enrolled in a direct purchase plan for a stock, you can often buy fractions of shares which action then relieves you of the problem of buying more or less that you wanted. Many dividend reinvestment plans also include a direct purchase option.

Pros and Cons of Dollar Cost Averaging

Is Dollar Cost Averaging a Good Idea?

The value of dollar cost averaging is that it relieves you of the task of trying to time the market. But, it also leaves you open to blindly purchasing shares of a stock that you really ought to get out of. So, is dollar cost averaging a good idea for all stocks and all investors? The answer is no. Whenever you are invested in a stock you need to keep track of its intrinsic stock value and get out if the stock is not likely to grow and return profits over time. Dollar cost averaging helps keep you from buying excessively in a rising market and allows you to purchase more in a falling market. But, you need to make certain that the fundamentals of your stock warrant staying with that investment.

Why Do Investors Use Dollar Cost Averaging?

Smart investors use dollar cost averaging to ensure that they are investing at a steady pace over the years. They use this approach because it keeps them from buying excessively when shares are overpriced and allows them to accumulate more shares when prices are down. Not only does this approach help you avoid trying to time the market, but it also reduces the effects of fear and greed on your investing. Discipline is a necessity for successful long term investing and dollar cost averaging is a disciplined way to invest your money.

Pros and Cons of Dollar Cost Averaging - Why It Works

Power of Dollar Cost Averaging

The power of dollar cost averaging in your investments comes from two things. First, when you invest on a regular and steady basis you will generally realize the benefits of exponential growth with the regular appreciation of your stock. Second, when you have been purchasing your using dollar value of stocks in a down market and the market recovers and surges, you will see a nice increase in the value of your portfolio. This approach can be especially powerful in volatile markets such as this year with the covid-19 crash and recovery. Anyone who did not panic but simply continued to invest as always has commonly been very pleased.

Reverse Dollar Cost Averaging

While you can build your portfolio using dollar cost averaging, what do you do when retirement comes and you want to reap the rewards of your disciplined investing? The answer is reverse dollar cost averaging. Sell the same dollar amount of shares every month or quarter and do not try to time the market. By leaving your money in the market you will still realize gains and in retirement you will not have to be bothered with trying to time the market to cover your expenses while you live the retirement life that you worked for and deserve.

How to Do Dollar Cost Averaging

For dollar cost averaging to work, you need to be invested in stocks or ETFs that reliably grow your wealth. So, you need to pick investments wisely and pay attention as you go. Alternatively, you can choose an ETF that tracks the S&P 500 or one of its sectors and very often do better than someone who tries to time the market, including many investment advisors. Pick a dollar amount that you can comfortably invest on a regular basis and stick with that amount for a year or so. If and when you have more to invest, do so. The key is to stay invested in good investments and invest on a regular basis for years and years!


Weaker Dollar and Your Investments

The US economy is going to need more stimulus money to recover and that will drive the dollar down. How about a weaker dollar and your investments? A weaker dollar is often good news for US exports but how does that work out in a world where every economy is weak and nobody has the money to buy anything? Let’s look at how a weaker dollar might affect the various sectors of the stock market.

Weaker Dollar and Your Investments in the Stock Market

Whenever the dollar goes up or down it affects different sectors of the stock market differently. Market Watch looks at what Wells Fargo says about a falling dollar and market sectors.

A falling U.S. dollar is getting a lot of attention from stock-market investors, and according to the chart below from Wells Fargo Investment Institute, the focus isn’t misplaced.

The chart sums up how the stock market and a variety of sectors have performed during past episodes of dollar weakness stretching back to 1988. As noted previously, the dollar’s long-term correlation with the S&P 500 SPX is somewhat negative, meaning that equities tend to rise as the dollar falls – though there are exceptions.

Weaker Dollar and Your Investments - Stock Market Sectors to Watch
This Chart Shows Who Prospers and Who Falls With the Dollar

In general, a weaker dollar means more sales by multinationals offshore and thus higher profits. This is especially true with high tech companies that do not need to ship anything but simply download software via the internet. Companies that need to ship materials can still profit but have a higher overhead. On the other hand, companies that sell products and services within the USA tend not to do so well when the dollar falls. Much is this because discretionary spending goes down in recessions and whenever the dollar is weak. Utilities also suffer a bit during these times.

Where Is the Dollar Going Next?

Gold is going up as the US prints more money to deal with the pandemic. Is this a short term phenomenon or something long term? NBC writes about the dollar headed for a fall.

There are certainly plenty of economists out there who will tell you that the dollar is headed for a fall. If the rest of the world stops buying our IOUs, the Treasury Department would have to keep raising interest rates until it could find buyers. That could, in theory, throw the U.S. economy into tailspin.

But for all its vulnerability, the U.S. dollar is still the most powerful currency in the world. And one big reason is that the U.S. economy is still the largest and most resilient in the world.

Because of this, the US has an outsized effect on the rest of the world. With a fifth of the world’s GDP and the dominant currency, the dollar often drives the rest of the world’s currencies and not the other way around. In regard to a weaker dollar and your investments, you can expect the USD to weaken from its three year high and then to slowly inflate over the years. But, because other currencies will follow the same course that part will have little effect on specific stock sectors. The greater effect over the next couple of years will be how the pandemic plays out and the abilities of nations to display the discipline needed to cope with this health crisis and its effect on their economies.


Stock Market Response to Election Uncertainty

The presidential election promises to be close again this year. What will be the stock market response to election uncertainty? Traditional thinking is that Republicans are pro-business and that Democrats are not. Thus, you might think that the stock market would fear a Biden presidency, welcome four more years of Trump, and move accordingly as polls indicate. But, our sister site, Profitable Trading Tips noted, in an article about how the market will respond to a Biden presidency, that the market is more likely to go after a Democratic victory than a Republican one. But, what happens when the election is going to be close?

Stock Market Response to Election Uncertainty

Market Watch wrote recently about what happens in close versus predictable presidential elections.

In our call of the day, Deutsche Bank global chief strategist Binky Chadha said in a close election U.S. stocks typically rally after the result, regardless of the winner.

In the 10 postwar “close elections,” which include all of the last five – defined as elections where the polls were consistently tight or fluctuating widely, making the result unpredictable – the result has been followed by an average 5% rally to year-end, the bank’s strategists said.

“While predictable elections were nonevents, close elections historically have seen equities begin to go sideways starting in July; then rally strongly after on a clear win, independent of who won,” Bandha said in a note.

The rationale that explains is this. The market loves certainty and hates uncertainty. Investors can make money with either a Republican or Democratic administration but the strategies may be different. Knowing what approach to take removes the uncertainty which is why there is typically a rally from Election Day until the end of the year after uncertain elections.

In the meantime, history tells us that during the approach to a close election, the market is relatively flat. This reflects the uncertainty that investors hate which is followed by the certainty that they like.

Stock Market Response to Election Uncertainty: Biden vs Trump
How Will This Close Election Affect Your Investing?

What Will the Election Mean to Your Investing Strategy?

Depending on who wins the presidential election and if they take Congress as well, things may not change very much or there could be a wholesale overhaul of how the country operates. As the big tech FAANG companies become more and more dominant, the odds of the next “trust buster” taking them apart goes up. Tax laws that favor the preservation of multigenerational wealth may be weakened as well. On the other hand, long-overdue investments in American infrastructure could result in a big increase in middle class jobs and a long-overdue equalization of wealth across America. Investors who pay attention will be able to develop new strategies accordingly. As noted in the San Diego Union-Tribune, Biden wants to strengthen US manufacturing, beef up infrastructure, and invest in both education and research.

Democratic presidential candidate Joe Biden released his $700 billion economic plan last week that is largely aimed at boosting U.S. manufacturing.

Under his plan, the federal government would spend $400 billion in government purchasing of U.S.-based goods and services over four years and $300 billion in research and development for new technologies and clean-energy initiatives.

Paying for it is a little up in the air with Biden’s campaign directing The Wall Street Journal to Biden’s previous tax plan that would raise taxes on corporations and the wealthiest Americans.

Higher corporate taxes may not sound like such a great idea for many investors but a wholesale revitalization of American industry and its R&D should help many focus where their investments will go over the next years.


Companies Under Nasdaq

If you want to find stocks in the tech sector and especially growing companies, look for companies under Nasdaq. Nasdaq ranks just behind the New York Stock Exchange in daily value of shares traded. It was founded in 1971 was the first electronic stock market in the world. Nevertheless, it functioned as a quote system initially. Because it lowered the bid to ask price difference for trades, it was popular with traders but not with brokers. Today Nasdaq is where you can trade the world’s largest tech companies

Difference Between NYSE and Nasdaq Exchange

Nasdaq is one of the two major US stock exchanges. Unlike the older New York Stock Exchange which is an auction market, the Nasdaq is a dealer market. While the NYSE matches the highest bid with the lowest asking price, the Nasdaq buying and selling happens electronically and virtually instantaneously.  While the NYSE and one designated market maker for each stock, the Nasdaq has fourteen on the average. While investors see the NYSE as the home for long term, stable stocks, investors go to the Nasdaq to find growth stocks, mostly in the tech sector.

Dow and Nasdaq Charts

In trading stocks for companies under Nasdaq traders use charts the same way as they do for NYSE companies, the Dow Jones Industrial Average, and others.

Companies under nasdaq: dow vs nasdaq charts

Example from Kitco

Dow and Nasdaq charts are both useful by themselves but can also be used side by side for comparisons and to help decide where to trade. Otherwise, Dow and Nasdaq charts work pretty much the same in terms of timing trades, using important moving averages, and for other purposes.

Dow Jones SP 500 Nasdaq

Although many choose to only invest in or trade companies under Nasdaq, most investors pick and choose among Dow Jones, SP500, Nasdaq and even foreign stocks based on their assessment of intrinsic stock value and tools like a stochastic trend. Investors who want to invest in ETFs that track these sectors will choose the Dow if they want blue chip companies, the S&P 500 if they want a broad cross section of the market, and Nasdaq if they want to track tech stocks, especially the FAANG stocks that have been leading the market.

Compare Dow Jones Nasdaq S&P

New traders and investors often want to know how to compare Dow Jones, Nasdaq and S&P. The three indexes track closely as the underlying companies are all affected by the business cycle and factors that drive the economy. Also, stocks like Apple are included in all three indices. When you compare Dow Jones, Nasdaq, and S&P it is useful to know how each is calculated. In each case total market capitalization is divided by a number that takes into account things like stock splits over the years.

Current Dow Jones Nasdaq

Companies under Nasdaq

Although the stocks in the Dow Jones and companies under Nasdaq are both subject to market forces, they may react differently. For example, the Dow contains ExxonMobil, General Electric, and Boeing. Each of these has been hit hard by the covid-19 pandemic and other factors. However, tech stocks like Microsoft have benefitted from the movement to business online and other factors related to social distancing.

Cheapest Nasdaq Index Fund

Many investors gave up trying to pick their own stocks years ago. They also gave up on having someone else manage their investments. Rather, they use a dollar cost averaging approach to put money into the cheapest Nasdaq index fund they could find. Three low cost index funds suggest by Nasdaq include the Schwab US Broad Market (NYSEMKT: SCHB), iShares Core S&P Total U.S. Stock Market (NYSEMKT: ITOT), and Vanguard Total Stock Market (NYSEMKT: VTI).

Define Nasdaq Index

How do you define a Nasdaq index? According to Investopedia, the Nasdaq composite index is

the market capitalization-weighted index of over 2,500 common equities listed on the Nasdaq stock exchange. The types of securities in the index include American depositary receipts, common stocks, real estate investment trusts (REITs) and tracking stocks, as well as limited partnership interests. The index includes all Nasdaq-listed stocks that are not derivatives, preferred shares, funds, exchange-traded funds (ETFs) or debenture securities.

This is the best measure of the overall performance of companies under Nasdaq.

MSFT Stock Nasdaq

Those who invested early in the MSFT stock Nasdaq listed more than thirty years ago are rich. But, even today Microsoft is one of the best tech investments. Anyone who purchased a few share of this stock when it went public in the late 1980s has seen their investment grow about more than 1,000-fold with stock splits and an increasing share price. The current quarterly dividend of Microsoft is $0.51. This is more than twenty times the original share price and will be paid out four times a year! Tech stocks have driven the stock market since the Financial Crisis and have proved to be somewhat immune to the effects of the covid-19 crisis. In fact, they may be propelled by the move online as social distancing becomes the norm. Here are some useful bits of information if you want to invest in MSFT.

Nasdaq MSFT Price Target

If you are considering an investment in Microsoft stock today, you want to know what it will be worth going forward. This is the Nasdaq MSFT price target. According to CNN Money, the MSFT price targets of twenty-eight analysts range from a low of $205 to a high of $260 with a median price target of $230. Now, at the end of July 2020 the stock sells for $201 a share. The stock started the year at $160, dipped to $135 at the start of the pandemic and has added 50% to its lowest price of the year. In general, analysts expect Microsoft to continue to grow at it has moved into lots of online services in addition to its dominant software business.

Nasdaq MSFT Dividend

The first Nasdaq MSFT dividend was in 2003. The stock price took a big hit during the dot com crash and the dividend was to reward investors for staying with a mature company that did not appear to have as strong a prospect of growth as previously. Now, the company has been growing nicely and still pays a dividend which has steadily increased over the years. Today’s dividend comes to $2.04 per share per year which currently is 1%. Although this dividend percentage is not as much as one sees with a utility stock, coupled with steady growth and dominance of its part of the tech sector makes Microsoft very attractive.

MSFT Stock Nasdaq Logo

Next MSFT Dividend Pay Date

Microsoft pays quarterly dividends. The next MSFT dividend pay date is September 10, 2020. The record date is August 20, 2020. And, the ex-dividend date is August 19, 2020. The ex-dividend date is the last date that the stock trades without the coming dividend being considered. The record date, which is the next day, is the date for which holders of the stock will receive the dividend. Thus, the price of the stock will jump up on the record date to account for the coming dividend payment. Because the amount of the coming dividend is known, there is generally no surprise regarding how much the price will jump up.

Nasdaq MSFT After Hours

Microsoft trades after hours as well as during the trading day. You can see Nasdaq MSFT after hours quotes on the Nasdaq site. A typical number of shares being trading after hours is about 600,000 as compared to about 3,000,000 during the trading day. The trading range is usually not that great during off hours unless some sort of news that affects the stock price becomes apparent at the end of the trading day. After hours trading is done on electronic communications networks that match buyers and sellers and do not use a stock exchange.

Sell MSFT Stock

Microsoft as well as many of the tech stocks that have led the market over the last decade have gone up considerably. Is it time to sell MSFT stock? You would only do so if you need the money or if you believe that the current situation with the covid-19 pandemic will get terribly worse and drive down prices for MSFT and other tech stocks. The covid-19 pandemic has driven down many stocks as social distancing has closed or reduced many businesses. However, the same conditions have driven businesses and entertainment online which has greatly benefitted Microsoft and other tech stocks.

MSFT Stock Split Prediction

Many companies split their stock when it rises to a certain price range. This is typically because they want shares to remain affordable to average investors. Microsoft stock has split 9 times over the years.

  • 9/21/1987: two for one
  • 4/16/1990: two for one
  • 6/27/1991: three for two
  • 6/15/1992: three for two
  • 5/23/1994: two for one
  • 12/09/1996: two for one
  • 2/23/1998: two for one
  • 3/29/1999: two for one
  • 2/18/2003: two for one

Although MSFT has not split for well more than a decade, the board of directors always has that as an option.

MSFT Stock Nasdaq - cloud computing

MSFT Stock Recommendation

The vast majority of stock analysts today recommend buying Microsoft stock. With an average price target 15% above its current price, a company with a huge cash reserve, huge presence in cloud computing, and a high cost of entry business, this stock is a buy in almost anyone’s book. However, the best way to approach this stock, as always, is to use intrinsic stock value analysis. Understand what the company does to make money and how that approach will continue to work into the distant future. In the case of MSFT, this reasoning will make the stock a good long term investment prospect.

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Will AI Replace Investment Bankers?

According to Wells Fargo, as many as 200,000 banking jobs will be replaced by artificial intelligence in the coming years. While this generally means a move to online banking instead of branch banks, no part of banking will be secure. This includes much of the work done by investment bankers. But, will AI replace investment bankers? That is not likely to happen. Investment bankers act in an advisory capacity to government and corporations in financial markets. They do not deal with individual investors where AI is most likely to replace jobs. What is likely to happen is that investment bankers will adopt many AI tools to assist in their work.

AI and Investment Banking

In the banking industry, it has become clear that artificial intelligence will level out the playing field between large and small operations. Much like the advent of personal computing brought advanced computational tools to everyone, AI will give small investment banking operations the tools former just available to the giants of the industry. AI is likely to make investment banking for precise, more efficient, and more profitable. Because AI systems learn as they go, there is less need to continually upgrade to smarter and more advanced products.

Will AI replace investment bankers?
Will AI Replace Investment Bankers?

AI Return on Investment

The degree to which AI benefits any business operation will depend on how deeply the company invests in artificial intelligence. And, it will depend on how well the AI system is designed to address business issues, fix them, and learn from the experience. According to Forbes, not every business currently sees benefits from adding AI to their operations.

Among the 90% of companies that have made some investment in AI, fewer than 2 out of 5 report business gains from AI in the past three years. This number improves to 3 out of 5 when we include companies that have made significant investments in AI.

(Return On Artificial Intelligence: The Challenge And The Opportunity: Forbes)

The point is that when investment bankers or anyone wants to use AI to improve business operations, they need to adapt the AI to deal with the specific needs of their business and follow through with the necessary changes.

The Best AI Stocks to Invest In

If you want to benefit from artificial intelligence in the coming years, there are more options than employing AI in your business. The best AI stocks to invest in provide you with the opportunity to invest and increase your wealth without having to understand and deal with AI directly. US News provides a nice list of the best AI stocks to invest in.

  • Nvidia Corp.
  • Alphabet (formerly Google)
  • Salesforce
  • Alteryx
  • Amazon.com
  • Microsoft
  • Twilio
  • IBM
  • Facebook
  • Tencent

Some of these produce AI products to help businesses, some employ AI in their own businesses, and some do both. Choosing the right ones for you will depend on your specific needs.

Best AI Startups to Invest In

If your goal is to maximize your profits when investing in AI stocks, the best bet is to find promising startups. Picking several AI startups will reduce your odds of investing in a stock that fizzles out and will increase your odds of picking a winner. There is a short list of the best AI startups to invest in.

  • Metromile
  • Conversica
  • DataVisor
  • IdentityMind
  • Numerify
  • Cruise
  • Plus.ai

(Built in SF)
Tech history is full of promising companies that did not make the cut and apparent also-rans that moved on to dominate the industry. Picking a basket of these stocks might be the best way to profit from AI investment.

AI Stocks to Invest in Now

Companies that do well in AI or any sector hit the business news when their profits go up which is also when their share prices will soar. When you invest in a successful company you are betting that they will continue to do well and grow in multiples year after year. But, how do you pick AI stocks to invest in now before their share prices go up? An approach suggested by The Motley Fool is to pick established companies in high cost of entry business. Choose companies that are developing and integrating AI successfully into their businesses. Examples noted by The Fool include Nvidia, Apple, and Baidu.

(Three Top Artificial Intelligence Stocks to Buy Right Now: The Motley Fool)

How to Invest in AI and Robotics

If you want to profit from investing in any stock or sector, you will do best if you understand what they do and how that will lead to long term profits. This is the standard intrinsic stock value approach to investing in stocks. If you believe in the AI sector and expect to see growth over the years, there are ETFs that you can invest in and not have to worry about deciding if an individual investment is a good idea. And if you want to choose an individual AI or robotics stock, you need to find out what they are making and how much money they will gain. Some applications of AI can be applied to businesses with huge profit margins and others to businesses that don’t make much money. Your job is to decide who will dominate a profitable sector for AI applications.

Will AI replace investment bankers - computer chip
AI Computer Chip – Will AI Replace Investment Bankers?

The No 1 AI Stock to Invest in Right Now

If you would like to avoid a lot of time and effort finding the best AI stock for today, is there a best choice? The No 1 AI stock to invest in right now according to multiple sources is Nvidia. This company makes the chips that lie at the heart of most AI applications. As their chips improve, so does AI. They are in a high cost of entry business and a modern version of selling picks and shovels when everyone else is digging for gold.

Will AI Replace Investment Bankers?

Will AI Replace Investment Bankers? – DOC

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Is Gold a Good Investment Now?

Gold is always a useful part of an investment portfolio. Although gold prices may fluctuate over the short term, gold maintains its value over the years. Gold is an excellent long term hedge against the devaluation of paper currencies and investments like stocks and bonds that are denominated in these currencies. Governments across the world are reducing the pain of the covid-19 economic crisis by printing money. The long term results will be devalued currencies and an increase in gold prices. To what extent is gold a good investment now?

Should I Invest in Gold or Stocks?

Although the stock market took a hit at the onset of the covid-19 pandemic, the market as a whole has come back. Many tech stocks are likely to continue to do well even as the economy struggles due to the virus. Thus many investment advisors suggest that you stay in the market either with well-chosen tech stocks or an ETF that tracks the S&P 500. However, the issue of currency devaluation persists. While the valuation of your stocks in dollars may continue to climb, the purchasing power of the dollar will probably decrease over the years. Here is where gold comes to the rescue as it maintains its purchasing power over the decades.

Is Gold a Good Investment Now - Gold Bars

Is It Good to Invest in Gold?

If gold is going to be your only investment vehicle, timing is very important. Too many investors get attracted to gold when the price rallies and forget about gold when the price falls. A better approach is the dollar cost averaging approach. You will accumulate more gold when prices are low and less when prices are high. Over the years your gold investments will grow and provide an excellent hedge against inflation and the periodic social, political, and economic crises that hit the world. Long term gold investors know that gold always comes back when times are tough. They take the long term approach.

Gold Investment 2020

Because of economic uncertainty, many investors are looking to gold as a refuge this year during the covid-19 pandemic. This concern has driven up the price of gold. Gold was selling for $1,400 an ounce in early December of 2019 and is selling for $1,800 in July of 2020. As the covid-19 pandemic and related economic crises are nowhere near an end, gold is likely to continue to rise over at least the next few months. Gold investment options today include ETFs that track the price of gold instead of simply buying and storing gold itself. Gold mining stocks tend to do very well at the onset of a gold rally as well.

Top Gold Stocks to Invest In

Gold investment in 2020 is not limited to buying gold bars or coins. There are gold ETFs and excellent gold stocks. Investopedia notes three top gold stocks for now. These are Barrick Gold Corp., Kinross Gold Corp., and Alacer Gold Corp. The first two are Canadian mining companies and the last operates in Turkey. Those who want to time the market may wish to invest in gold mining stocks which tend to rise faster than the price of gold going into a gold rally. However, these stocks also fall faster than gold when a rally fizzles. As such they tend to be short term options for many gold investors.

Is gold a good investment now - open pit gold mine

Investing Futures Gold

Commodities investors often buy and sell gold futures as they seek to profit from trends or hedge against risks. CME gold futures currently price gold at $1,856 an ounce for April of 2021. The current futures price for June 2026 is $1,938. The majority of gold futures are bought and sold by gold mining and gold processing companies in order to hedge their risks. However, speculators who successfully predict price swings are profit handsomely by trading gold futures. As you can see if you visit the CME link, there is a steady increase in the price of gold built into the futures as everyone expects a slow but steady decrease in the purchasing power of the US dollar.

Best Ways to Invest in Gold and Silver

Folks who want to hedge against inflation and the predictable steady decrease in the purchasing power of the dollar, pound, euro, yen and other currencies put part of their portfolio in gold and silver investments. The easiest and, for most, the best ways to invest in gold and silver are to buy shares of ETFs that track precious metal prices. You do need to find secure storage for gold or silver bars like you do if you buy these precious metals. We mentioned mining stocks which can be part of your portfolio but these investment vehicles need more attention and will not fit the needs of many buy and hold investors.

Forex Gold Investing

Most of the world does not use US dollars to buy gold. But many investors use the Forex system to find more lucrative investments that lie outside of their currencies. By using Forex options, a trader can move money from Yen to USD, for example, use dollars to buy stocks, bonds, or gold, and protect against currency risk as well. This can be a very profitable way of using the Forex system but takes expertise and time. The average investor will do better simply using the Forex system to protect their assets against losses in their home currency and not try to game the system.

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Does Long Term Investment Work?

Much investment advice tells you to put your money into a basket of US stocks and hold on. The argument for investing in stocks is that over the years, the US stock market has routinely created wealth for those who stay invested. However, how does that work out when you look at the profits of long term investments and inflation? After all, the reason we save and invest is to maintain our purchasing power in retirement and to increase it generally over time. The question is, does long term investment work?

Does Long Term Investment Work?

First, let’s review the experience of the US stock market since 1929. The argument is that even if you never sold any of your stocks during the 1929 crash that you would have been ahead again after a few years. This “analysis” is done by following the Dow Jones Industrial Average over the years. It is true that the Dow uses an adjustment to allow for stock splits and dividends. But, the first ETF was only born in 1993 and they were not common until more than a decade later. Today you can put money in the SPDR Dow Jones Industrial Average and forget about it. But, that option was not available for decades after 1929. You would have needed to buy every stock in the DJIA at that time. And that approach would not have worked out very well!

Investing in Stocks in the 1929 Dow Jones Industrial Average

Because the recovery of the Dow Industrial Average is used as an argument for staying with the stock market through thick and thin, we looked at the stocks in the 1929 DJIA. As today, there were thirty stocks. Of those thirty, twelve survive today as the same company in the same business or, as in the case of Union Carbide Corporation, a part of a company in the same business, Dow Chemical. Here are the twelve.

Survivors from the 1929 DJIA

  1. Atlantic Refining Company merged and became ARCO
  2. Curtis-Wright Corporation continues under the same name
  3. General Electric Company continues under the same name
  4. General Foods Corporation is part of Kraft Foods
  5. General Motors survived bankruptcy and continues in the same business
  6. International Harvester Company downsized and continues as Navistar
  7. National Cash Register Company continues as NCR
  8. Sears Roebuck & Company is a shadow of its former self as Sears
  9. Standard Oil of New Jersey is now ExxonMobil
  10. Union Carbide is part of Dow Chemical
  11. United States Steel Corporation remains as a shadow of its former self
  12. Westinghouse Corporation continues its nuclear power business as Westinghouse Electric Company

Of the dozen that still resemble their former selves, US Steel and Sears have gone from being the first in the world in their businesses to being 26th place in the case of US Steel and ready to fall off the earth in the case of Sears. While General Electric still is a huge business with an impressive cash flow, their profits have been awful for nearly a decade and their stock price has suffered.

Non-survivors from the 1929 DJIA

The eighteen other companies were taken over by other companies, changed their business models so as to be unrecognizable as their former selves, went out of business, or were broken up by the SEC.

The point of all this is that in order to have benefitted from the recovery and forward growth of the DJIA, you would have had to buy and sell stocks so as keep matching the constituents of the Dow. A problem with that approach is that companies get kicked out of the DJIA after their performance gets bad and not beforehand. Thus, a better approach would have been to have learned how to calculate and use intrinsic stock value to guide your choices. But, then you would not have been tracking the DJIA!

Long Term Inflation

According to the CPI Inflation Calculator, to have the same purchasing power as $100 in 1929 you would need $1,499.38 today. In other words, your investments would need to have increased fifteen-fold after taxes to simply hold their purchasing power today. This would never have worked out with the majority of the stocks in the 1929 DJIA list.

Are Stocks for the Long Term a Problem?

Market Watch published an opinion piece questioning investment in stocks for the long term. They claim that there is a 30% chance of losing money by holding stocks for five years, a 20% chance of losing money over 20 years, and a 12% chance of losing money over 30 years. They looked at markets across the world and went back to the middle of the 19th century. Many unforeseen events like world wars played havoc with investments but they note that we are now going through the third “once in a lifetime” crisis in the last 20 years!

Does Long Term Investment Work?
Ideal Case for Long Term Investment

So, Why Are Some Investors So Successful?

But, if stocks are such a terrible idea, why is Warren Buffett so rich that he can give away about $7 billion a year and remain one of the three of four richest people on earth?

The key may be in Buffett’s comment that stock portfolio diversification is merely protection against ignorance. If you follow his recipe of only investing in companies whose business plan he understands and whose business plan is likely to keep making money over the long term, you could avoid quite a few of the losses in the 1929 DJIA group. Jim Cramer was quoted as saying that the average investor should keep his investments down to five or less as it is too much work to track more unless you invest full time.

It would seem that if you want to engage in short term or long term investing, you need to pay attention or you need to accept lower gains. Buffett, again, has said that a good approach for someone who does not have the time or interest to track stocks should buy shares of an ETF that tracks the S&P 500 (which tracks 500 stocks and not 30).

Picking Stocks to Invest in Long Term

To do this successfully, you need to understand and use fundamental analysis. And, you need to continue to use the same analysis to decide whether or not to stay invested in any given stock. Past performance and current cash flow are good guides to investing in stocks, but you still need to understand just why the company is making money and how that is going to continue into the distant future! Using the Dow Jones Industrial Average as a starting point by investing in an ETF that tracks this average can be a good starting point for long term investing.

Does Long Term Investment Work? – Slideshare

Does Long Term Investment Work? – DOC

Does Long Term Investment Work? – PDF


Future Dow Jones

The Dow Jones Industrial Average is a market index of thirty large cap companies listed on US stock exchanges. It has been around since 1896 and is the stock index most commonly followed by both investors and the general public. It was named for Charles Dow and Edward Jones. The SPDR Dow Jones Industrial Average ETF allows investors to replicate Dow performance in their own portfolios. As noted by Investopedia, the SPDR Dow Jones Industrial Average ETF is the only ETF that tracks the Dow. As with individual stocks on US markets, one can buy and sell Dow Jones Industrial Average Futures as well as any given Dow constituent.

Dow Industrial Average Futures

Investors who want to speculate on movements of the Dow or who wish to hedge against loss with other investments can buy and sell Dow Industrial Average Futures. The most commonly used futures instruments are called E-mini Dow Futures. These futures are products of the CME, Chicago Mercantile Exchange, and expire in March, June, September, and December. You can trade these almost twenty-four hours a day on the CME Globex exchange starting on Sunday afternoon and ending on Friday afternoon,

The ticker symbol for E-mini Dow futures is YM and a minimum tick is one index point or $5. To maintain a position with CME you need continuing equity of $3,200 and a starting payment of $3,550. The most common use of these futures is to hedge commodity investments.

Future Dow Jones - DJIA last 5 years

What Does Dow Futures Mean?

When you listen to the early business news, you commonly hear that Dow futures are moving up or down. Investors use this information as an indication of where the market is headed for the day. Those who buy Dow Futures make money when the Dow goes up and those who sell Dow futures make money when the index goes down. Dow futures work like all other futures. They are contracts that define the price at which it will be bought or sold at a specified future date. You do not need to own any of the Dow stocks to buy and sell futures.

How Do Dow Futures Work?

Dow Jones Futures trade on the Chicago Board of Trade starting an hour and ten minutes before the markets open. Because you trade these futures on an exchange, you are protected against the risk of the other party not following through on their side of the trade. When you trade Dow futures there is built-in leverage by a ten-fold multiplier. Thus, for each dollar or point that the DJIA fluctuates, your contract goes up or down by $10. This gives the trader the opportunity to make substantial profits on relatively small investments but also opens to door to huge losses on poorly planned trades.

Future Dow Jones - DJIAFTR futures index

Dow Futures Stock Price

The Dow Jones Futures follow the Dow Jones Industrial Average. Thus, when the Dow is in the $25,000 range in July of 2020, that is the Dow Futures “Stock Price.” For every point that the Dow goes up or down, the buyer of a Dow futures contract makes $10 and the seller loses $10 on their trade. The Dow goes up or down based on the thirty individual large cap stocks in the index. These price movements can be based on earnings reports (past performance) or predictions of the economy going up or down (future performance).

Dow Futures Hours

Dow Jones Industrial Average futures trade on the CME Globex from Monday through Friday. However, trading actually starts at 5 pm the previous day so Monday trading really starts at 5 pm US Central Time on Sunday. With a built-in trading halt each day from 3:15 pm to 3:30 pm, trading goes until 4:15 pm. Thus, Saturday is the only day that Dow Futures do not trade. Futures traders need to be aware that downside and upside limits change throughout the trading day and that the times stated are always for the US Central Time Zone where Chicago is located.

Dow Futures Streaming

Dow Jones provides live streaming for both the Dow Jones Industrial Average and Dow Jones Futures which track the Dow Average. This information is useful for those who want to buy or sell Dow Jones futures either go get into or to get out of a position. This information can be found on the Dow Jones site and can be integrated into a trading platform for the active day trader. Using Dow futures streaming, a trader can use tools like important moving averages to guide their trading. This information can also be analyzed with Japanese Candlestick Trading Signals.

Current Dow Futures Live

You can see current Dow futures live on the Dow Jones site or on any of several sites that feature trading information and advice. In general, you will not be able to use an ad blocker as these sites aim to present advertising and to sell things. They use live streaming to get you to the site. The serious trader or investor using Dow futures will want to be connected through his or her trading platform to get live Dow futures without having to deal with the sort of spam emails and advertising too-often associated with commercial sites.

Future Dow Jones – Slideshare

Future Dow Jones –
DOC

Future Dow Jones – PDF


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