Use ETFs To Make Money In This Volatile Market

| December 7, 2011 | 0 Comments

Have you been investing in the stock market over the past few weeks?  If so, you’ve certainly been on a rollercoaster ride.  We’ve seen over a 1,000 point swing higher in the Dow over this period.

But, don’t turn your back now, not even for a second, the ride isn’t over yet.

No doubt about it… there’s still a lot of risk in this market.

Now more than ever, you need a way to offset market risk.  There’s still a cloud looming over the global economy.  But at the same time, you still want to capture any potential upside.

No problem… I have just the strategy to accomplish these goals.

You see, back in my hedge fund days, we used a disciplined approach to limit risk and capture upside.  It’s a sector rotation strategy.  We exited individual stocks and replaced them with sector ETFs.  This strategy worked very well for us and I know it can do the same for you.

So, let’s get into the guts of this approach.

You see, the economy always goes through cycles.

As you’ve no doubt noticed, we’re currently coming out of a full recession.  Now we’re in the start of a recovery phase, a turning point where the economy starts showing signs of life.

As time moves on, we’ll see a full recovery or expansionary period.  This will be our happy spot.  The economy will be growing, the stock market rising, and real estate really improving.

However, at some point a long time from now, we’ll have peaked again. And the economy will once again grow slowly or slide into recession.

And around we go.

Now, many people don’t realize different sectors tend to perform better than others during certain parts of the economic cycle.

All you need to do is figure out where we are in the economic cycle.  Then, jump on the industries that tend to do well at that point in the cycle.

Best of all… our friendly stock market will often do the homework for you.

The market, as you know, anticipates sector moves.  There’s a point where you’ll start to see certain industries outperform others.  It usually starts three to six months before a new rotation begins.

The key is… pay attention to the markets and watch for certain sectors starting to rotate.

Once you find a sector moving, the best way to invest is through ETFs.  ETFs, or Exchange Traded Funds, are baskets of stocks often grouped into sectors.  What’s more, they give you a clear cut way to trade economic cycles.

Over the last few years, a number of different industry specific and sector specific ETFs have been created.

For example…

Right now we’re seeing money move into technology stocks.  So, what you’ll want to do is invest in a technology ETF, like the Technology Select Sector SPDR ETF (XLK).

It’s a basket of stocks all drawn from the technology sector.  Inside this basket is about 84 individual stocks like Apple (AAPL), IBM (IBM), Microsoft (MSFT), and Intel (INTC) just to name a few.

Simply put… you make one trade and get exposure to all of the top technology firms.

More importantly… by following this approach, you automatically reduce your risk.

It’s true… by investing in different sectors using ETFs, your risk is spread across many companies.

For instance, if you buy one stock, you run the risk of losing substantial money if the company falters.  However, the XLK is diversified across a big basket of companies.  If one stock goes bad, you won’t be totally wiped out.

Here’s the bottom line…

By using a sector rotation strategy and investing in sector ETFs, you’ll have less risk and still capture big uptrends.  And you’ll be using a disciplined investment strategy that’s applicable in any part of the economic cycle.

I have no doubt… you’ll be making money more easily than ever before.

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Category: ETFs

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