NEW YORK (ETF Expert) -- Some resolutions and goals are much harder than others. Here are three investing goals that enthusiasts of exchanged-traded funds 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 (GLD)?
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).
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