Low-Risk, High-Return Strategy: Reduce Risk by 40

Everyone screams long-term investing.
But even short-term trading can be surprisingly profitable, depending on your strategy. Many investors shy away from active trading. That’s a good thing. Because if you get it wrong, you can lose a lot of money. For most investors, “buy and hold” is a strategy that realistically offers the best risk/return ratio. The problem is, there’s a lot of risk involved. In this article, I’m going to talk about an interesting investment idea from an American investment information firm called Banyan Hill. (Source link)

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Holding stocks long term is also a risky strategy

Let’s say an American invested in an index fund in early 2008 with plans to retire in a few months. In 2009, we had the global financial crisis. He will lose more than half of his savings in the financial crisis the following year. And it would take a decade or more to recoup that with an index fund. This is just one example. Bear markets always happen when you least expect them, and they can be devastating to your retirement plan. Because of this risk, many investors shift a portion of their portfolio to bonds as they approach retirement. This has been a great strategy for most of the last 50 years.

However, today’s bonds are riskier because interest rates are more likely to rise than fall over the next few decades. Tried-and-true investment strategies that have worked in the past have become shaky bets in this environment. What are the alternatives? There are practical ways to beat the market and compensate for the weaknesses of the buy-and-hold strategy.

Strategies for securing big returns with low risk

Some stocks are the best choice for the long term. You may not realize it, but active trading is also a good plan for the long term. Combining these two strategies can be the key to a secure retirement. One way to do this is to allocate half of your portfolio to index funds. This way, you can capture the market’s gains while bearing 100% of the market’s risk. The other half of the account is available for trading. A simple trading strategy is to buy when the price is above the 200-day moving average (MA) and sell when the price is below the MA. This strategy is designed to reduce risk and capture most of the upside potential of the market. This plan may not win the market, and that’s okay. MA strategies have accounted for 76% of buy-and-hold returns over the past 25 years, while reducing risk by more than half. It’s much better to lose only 25% of your account balance than to lose 55% like investors did in 2009.

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A trading strategy that reduces risk by 40%?

If you had invested half of your funds in the SPDR S&P 500 ETF Trust (NYSE: SPY) and traded the other half with an MA strategy, your investment risk would have been reduced by up to 40% or more. High returns for low risk is what this strategy is all about.

An ETF that most people think of as a good long-term investment is the SPY, which tracks the S&P index. This is what we usually think of when we think of long-term investments. However, depending on your investment style, there’s no reason to stick with this product. If periodic income is important to you, you can use ETFs that focus on dividends or bonds. You can have ETFs targeting technology, real estate, emerging markets, or anything else you think will help you achieve your goals. Many people feel uncomfortable with trading strategies. But trading is one of the best opportunities for investors to fund their dream retirement. Many people don’t have enough money. By learning to think differently about investing, you can earn bigger returns and have more opportunities to enjoy your retirement.

  • The content of this blog post is based on the sources listed below, and we are not responsible for your investment decisions. I personally doubt the accuracy of the statistics mentioned. Please direct inquiries to the original author.
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