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Thursday, October 8, 2009

Index Investing - Your Own Hedge Fund

With the Bernie Madoff fiasco, some investors feel that any hedge fund is just a scam. It is easy to see why you might feel that way. Savvy investors know that there are still some great hedge fund managers out there, but how do you find them?

In this article we want to talk a little about creating your own hedge fund using Index Investing.

When you invest in an index you are just wanting movement of that index, such as the dow, mini dow, S&P, emini S&P, Russell, mini Russell

Millionaires Are Made During Depressions and Recessions, and there are savvy investors that are making tons of money right now in the markets (and with Real Estate).

To create your own hedge, you need to learn how to make money when the market is dropping. Did you know that 80 percent of all investors have not plan for capitalizing on market drops? That is a MAJOR disadvantage, don't you think!

To really HEDGE anything you need to be able to earn money no matter what the market is doing. That is what the Wall Street insiders do, and that is what YOU should be doing too.

Stock Trading Vs. Index Investing

Most people who invest in anything look to the stock market. That's only natural, that is what you hear the most about. You have no doubt also heard things like "Stay away from futures or you will lose your shirt". My response to that is, look how many stock investors lost their shirts with the meltdown. Then many pulled their money out of the market (sadly - many had their cash in mutual funds - we like ETFs MUCH better) and missed the ride back up.

Wall Street hopes you get out at the bottom, and they want you to buy at the top. So, you are getting out when they are getting in, and when you are getting in, they are exiting!

It can be tough for most folks to make money with stocks when the market is tanking. Finding a company that you will bet against (by shorting their stock), in my opinion is harder than finding a good company to ride up with.

There are so many ways that these big corporations can cook the books. That should be more obvious after the melt down than ever.

We like trading the index, cause it is just as easy to short and ride it down as it is to ride it up. In fact, it is even easier on the way down because prices nearly always drop faster than they rise. It took Microsoft YEARS to reach is pinnacle, but only a few months to fall down to earth (with must of that drop coming within a couple weeks). The overall index acts the same way, only within minutes or sometimes seconds.

In my opinion, learning to trade an index, either long or short term is one of the best ways to hedge.

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