Recent ups and downs

The lessons to be learned from the recent ups and downs in early 2016 - basically January saw a downswing and fears of a -20% drop followed by a huge surge up at the time of this writing as of March 10 2016. Let us see what future unfolds but for now, we can reflect on this period and the current thought process on what I would have done with the current tools and strategy matrices etc and what would that resulted in:

The overall fluctuations across market did not catch up to the heights of many of the stocks. The core of the rally is powered by fundamentally strong and big volume stocks such as Walmart, AT&T among others. So really this rally is a rather locale or isolated rally than across the sector rally which would have more legs in it. So, I think things are going to go down in the coming weeks again. If there is any uncertainty coming from any part of the world, this froth is going to go down big time. So I would rather wait and watch. But the truth is maybe there was some buy and sell opportunity in the broader ETF and select stocks such as Walmart. But all in all, I would say if you had say 10,000 then maybe about 500 of this could be something that you could put into stocks or etfs and maybe swing it a bit. But anything more than that is a risk. Honestly even this 500 is a risk .. more conservatively I would say between 100 to 400 on the liberal side. So that is pretty much it. Some of them did well and some did not. So again monkey business as usual. And if you did not buy or sell and simply hold on to what you have .. then you have not really missed any big action here.

March newsletter and no longer supporting bank of america/Merill edge platform

So what is the best word to describe the going ons in the stock market in the past couple months ? 

SEE-SAW

It went up and then went down and then went further down and then came back up and then went down  .. same thing is going on ... yeah, some people might think of this as a swing situation and do swing trading. As shown in the previous posts here: 

http://millenialfinanceblog.blogspot.com/2016/01/jan-2016-newsletter.html

that hardly makes any difference. I did a swing post back testing for the last 10 years when there was a good downswing followed by considerable upswing. That period gives us a refreshing course of how it works and not generally fall into what pundits say about stocks always performing better. In a way, it is a good test of risk tolerance and balance and understanding of stocks and economy as well as general human behavior. Without boring you with the data, there is hardly a correlation between faster trading - whether daily or over a few months or quarterly to periodic rebalancing to any concrete return in profits. In other words, too much of reliance in timing never works. At the same time, we know that those who did buy during early 2009 are sitting in some pretty good gains so of course, some timings does work.

Hence, in this blog we advocate doing a balance when it comes to different approaches. Never take any statement in absolute way. Only sith deals in absolute. So there will lots of gurus who will tell about do this or dont do this, dont do options, do options for hedging, invest only in index or vanguard or dont do that and invest only in invesco or american funds or active funds and so on .. the thing is in the finance world, there is no true point. Rather it is a big picture about possible true or better positions for your hard earned money. One works hard and essentially puts in some time early on to accumulate some money which is supposed to help oneself as well as one's family in future. Usual investment vehicles aside, diversification is the very first key. After that manage risk, do periodic rebalancing, maybe do some aflacku the duck style or any monkey/baboon style throwing in some money and holding it on for a period of time and using just plain common sense, selling it off after a time when you have made some decent returns. 

As for investment vehicles, choose the ones that you are comfortable with like stocks or bond or CDs or options ( though we dont advocate that or betting or derivatives or anything akin to gambling ) or just cash holdings ( yeah! that is fine too. Cash came out ahead in 2015). Choose your avenues - ira or taxable etc. wisely. Once you have some sizeable holdings, over 100k+, is when there is at least some strategy to play with. Now in one of the previous blogs, I had mentioned about the benefits of $0 trade fees for stocks and how merill edge and bank of america is a good case study on how to implement this. Well, I am rolling back my position on that after some experience. First of all, the data point that index trading is much better and effecient compared to individual stock trading. Secondly, there are players like Loyal3 or Robinhood which are way better than the Merril edge / bank of america combo with way less balance requirements. And most importantly, the rise in CD rates which I had sort of lost sight off. 

A little backstory: long time ago, there was a company called Zecco and they had a $0 commission fee in exchange for ads. Many other companies before and after tried that and eventually got acquired. The current roster of loyal3/robinhood is pretty much the continuation of the same strategy of acquiring user base and then selling off to bigger rivals. Banks like Wells fargo with their wellstrade program or Bank of amerca with their merill edge platform are rich enough to absorb some of these fees if there is volume. But most importantly they want some balance with them which will generate margin fees. No free lunch there. So back in the day, I had calculated this in the back of a napkin and justified that online banks ( like discover or amex ) will come out ahead with their better interest rates coupled with low cost stock brokers such as Tradeking or really anything under 10 bucks per trade if you do limited trade per year which is what is recommended in general whether it is a swing market, up or down one. Now with merill, I justified to keep 25k on the side or put it low interest cd or just periodically put that in an account and maybe do periodic trading. That does make sense but honestly it is more of a hustle  than a strategy. It is more something  that will be a distraction and hence given that and more importantly the fact that if you have stock trading in say a basket of 10 stocks vs you trade for free in an etf with Fidelity, you are likely coming out ahead with less stress and less costs and almost equivalent or even better performance with effecient risk management in the case of ETFs.  The current list of banks with IRA CDs worth considering are again mostly in online space or credit unions - such as Alliant credit union or Penfed credit union among others; Ally bank or Discover bank among others .. Nyat sure if barclays or Amex offer similar products but that would be worth a look. The point is, an online savings bank or credit union for your IRA cd with ETF from the providers and a low cost brokerage ( under 5 bucks ) comes out still ahead of the bank of america merrill edge program. Muh math on the latter was a bit off given that there is a 25k requirement in the bank of america deposit which currently yields about $5 if I were to generously round it off. The same with ally to discover will yield about $375 to $300 at the minimum. Those are safe and more convenient to bank of america. Not to mention, you are getting $300/5 = 60 trades for an year.  Now do you really that many trades in a given year? With a corpus of 100k+ to about 500k or so, it is doubtful that you are going to find that many quality trades. With a good financial advisor by the side, you are looking at about 10-40 trades at the maximum for that kind of amount per year. If someone advises more than that, fire them regardless of market conditions. So in a nutshell, I am going back on my last lesson that merill edge/bank of america is a good program and essentially dont recommend it all. On the contrary, stick to less trading and more thinking. Use etfs. They are free. Use better and cheaper platforms. Trade less. Park some on CD. That is something that I definitely stand by from my previous post.