How do you plan to park your money?

[masayako]

Since most of us agree that housing market is heading south, how do you plan to park your spare money?

[4plexowner]

Here are some possibilities – we have talked about these in other threads:

> CDs

> money market fund that invests only in short-term US govt notes and bills (Gabelli US Treasury Money Market Fund, for example, which currently pays 4.7% with check writing privileges) – benefit from rising interest rates (as compared to having a fixed-rate CD) – safer than other funds that hold all kinds of weird securities in their portfolios

> foreign currencies – Everbank (www.everbank.com) is an online bank that offers CDs which are denominated in foreign currencies – IMO, stick with Canada, Australia and New Zealand

> physical silver and gold bullion
~ stored in safe or safe deposit box or buried in the garden
~ Perth Mint Certificates (www.perthmint.com.au) – buy silver and gold with free storage at the mint in Australia

> silver and gold ETFs and funds:
~ Central Fund of Canada (CEF) holds about half and half silver and gold bullion
~ iShares Silver Trust (SLV) – each share backed by 10 ounces of physical silver
~ streetTracks Gold Trust (GLD) – each share backed by 1/10th ounce physical gold

> stocks of companies that mine silver and gold

> stocks of energy companies (natural gas, oil, uranium)

Lots of possibilities for parking money. Varying degrees of risk and potential reward. Each individual has to research the options and decide what feels right for them.

I believe silver and gold, whether it is physical or paper, is THE place to park investment money for the next five years at least. Zeal (www.zealllc.com) and Casey Research (www.caseyresearch.com) offer newsletters for people wanting to invest and/or speculate in the precious metals sector.

The energy sector comes in second place for me with an emphasis on companies exploring for natural gas in the US and Canada. Again, Zeal and Casey Research offer excellent guidance in the energy sector.

[Anonymous]

Energy and metals may be OK—but really they are very—exceptionally—-volatile, as the last few months have shown. It makes condo speculation look tame. (almost).

Despite the doom and gloomers we will be stuck with normal money for the rest of our lifetimes. If that collapses, we will have much worse problems still. We have to pay taxes in dollars in the US. Utilities are in dollars. Salaries are in dollars, etc.

I don’t think gold/silver especially are good places for “parking” money. Silver can fluctuate 3-5% in a DAY—and silver mining stocks leveraged to commodity prices even worse.

Maybe ok for long term speculating, but not “parking” money.

A few suggestions. Cash (treasury bills) is always acceptable. Avoid all ‘junk bonds’. Pimco global bond funds may be good but they have high front-end fees and so aren’t really ‘parkable’ for holding liquid assets with minimum transaction costs.

Suggestions:

‘PPR’. a closed end fund based on loans at ‘prime rate’, i.e. it goes up with increasing rates. High yield as it’s trading below net asset value. Quite stable. Spread on NYSE is usually one cent, with market value about 7.00 /share. Yield is 7%+.

Oil and gas trusts which pay dividends, if you think oil will remain high. CNE is a Canadian one and has the administrative benefit of paying qualified dividends instead of the really pain-in-the-ass-at-tax-time partnership stuff.
BPT is another stable trust, but note it is with a depleting asset.

Other Canadian royalty trusts could be OK.

I don’t think there will be a long term crash of US dollar against other currencies, except for East Asian ones. For all the macroeconomic problems the US has, the EU has its own. Their politicians are already screaming about how ‘painful’ the high euro is to their industries and getting the ECB to try to push it down. There will be competitive devaluations.

Maybe even yen or korean won might be good in the long run? Chinese Yuan would be best but the regulations will undobutably be designed to screw foreign investors.

[LookoutBelow]

Short term CD’s…..everything else involves lots of risk.

forget the carrot on the end of the stick with returns on investment….like that drivel about “Emerging Markets” people deserve to lose their money in those scams…..its investing in 3rd world dumps with unstable governments and poverty beyond comprehension……Of course the stock pimps push this crap like its a real bargain……

[powayseller]

CD’s

Diversify in euros if you think the dollar will keep weakening

5-10% in gold after the gold correction ends (read Zeal and Chris Johnson’s newsletters).

[JJGittes]

The Vanguard fed and CA tax free money market, or tax free muni bond fund. Liquid, safe, decent yield. CD’s if you can do without liquidity. Why bet the farm money on anything riskier?

[powayseller]

Money market funds are not FDIC insured. When the GSEs go through all that predicted systemic risk , what will be the value of your money market?

So what if the CD has a penalty for early withdrawal? Have you asked what is that penalty? It is usually the loss of 1 month of interest. But never the loss of principal.

The money market does have a risk of loss of principal. They say it has never happened, but they cannot tell you it never will. Maybe the odds are low. Does anyone know the odds of a money market losing principal?

[JJGittes]

Why do you believe the FDIC will be solvent? Between the coming global superstorm and the pending financial collapse of the western world, heck, let’s all convert to krugerands and stick them in a hole in the backyard along side a years supply of freeze dried food and a shotgun. (Some of the black helicopter bearishness on the bubble blogs has been a little extreme even for me—someone who is completely on board with Rich’s views on SD real estate.)

[powayseller]

If the FDIC becomes insolvent, the government will bail them out. As they will bail out the Pension Benefit Guaranty Corp, and they bailed out LTCM and hundreds of banks in the 1980’s.

What global superstorm? What collapse of the financial world? I think you are getting carried away here.

The statements about systemic risk of GSEs are coming regularly from the US government. Here is a talk given by a US Treasury Department official last week. He is passionate about GSE reform.

“Past history reminds us that serious financial problems in the GSEs are not only a possibility, but an unfortunate reality. And, I feel compelled to remind you that the federal government has taken steps to assist a troubled GSE in the past.” Emil Henry W. Jr., US Treasury, 6/26/2006

[anxvariety]

I go between paranoid and optimistic about the markets.. but I think I’ve settled a little bit. Afterall, I did post a few weeks ago that I was going to pull my weekly paycheck in cash and buy a % of gold.. so far so good, but I haven’t been as extreme as I proposed.

One reason… Looking at all the houses on the coast, and all the new development in Oceanside(North County) I feel that some areas just really aren’t succeptible do a downturn at least in a catasprophic way… maybe it’s not 1 for 1, as in for each bad area there’s one good area.. but even if there’s one good or steady area per 10 bad it might not be so bad.. I guess that for few every people that are living paycheck to paycheck there’s a person that has quite a bit of cash and won’t be seriously affected, as in not standing in soup lines or thinking about jumping out of their window…. you know all those old money people, and frugal construction workers that have made a killing off the boom.. they probably have enough money to survive for 10 years… oh wait, their money is probably in banks!! Do they have any gold? OH NO, I’m already paranoid again!! 🙂

[anxvariety]

I have been trading options lately instead of stocks.. and I have done better than I’ve ever done in stocks.. Keep in mind it’s only been a few months, in fairness, I’ll report back with any gloom I experience if it happens..

With options you get way more leverage and upside, with a predefined amount of loss risk up front.

The stock market has been so volatile lately, that with a very small amount of money you can see enormous gains in options.

I’ll give an example of some options that I bought and screwed up on.

I bought 500 PCUIP(Sep 80) calls on 6/13 for $3.30 cents each.. the total cost was: $1,713.25 including $13 comission. The underyling stock for these options is Southern Copper(PCU).

I sold a few days later, because I had realized some gains – and got a little skittish… well now 15 days later those options are at $14.20… If I hadn’t of sold(I don’t regret my instincts to sell, I’m happy with my gains) those options would be worth 500 x $14.20 = $7100, in other words $5387 profit.

I know it’s a woulda coulda situation, but I thought that would be better than sounding like I’m bragging.. in fairness, in the last month I did have 2 other notable situations, one where I realized 300% gain(Underlying stock = FRO).. and another where I experienced a -16k swing(Underlying stock = COP) that is now back to +2k(that was a 18k rollercoaster!)

Can anyone show another place you can put your money where you can get that kind of volatility? The example(plus one of the others I mentioned) was 300% in 2 weeks, with only a couple thousand dollar invesment.. Maybe this isn’t a fair example, as the oil and precious metal markets had a pretty serious downward correction with a recovery.

I feel that the stock market is going to be real reactive over the next couple of years, and in general I don’t see things going up much overall but just bouncing between their averages.. See CSCO, MSFT price over last few years for example. I believe this presents and incredible opportunity with options investing, because it doesn’t matter if the stock has year over year gains so much… just that it’s a solid company with alot of buy and sell activity.

This is just my perspective, I consider myself a amatuer investor. Zeal LLC, to which I’ve been a subscriber now for 8 months, is where I got the leads on 2 of the 3 option trades I referred to above.

[Anonymous]

Chris Johnston

Well, If you want volatility, my daily trading service for Bond Futures has it, LOL! It does not however, have volatility that extreme, unless it is maxed out irresponsibly. With options you do risk the full amount, and hence get the big leverage. I only risk 5% at a time. The service is up 42% YTD, but has had some up’s and downs along the way. It has never been in the red, the volatility has been in giving some of the profits back here and there. It was up 54% a month ago, so gave some profit back in June.

I am not trying to push the service. I just am pointing out that futures trading has that kind of volatility every day. Every day, some market has a big move. As a trader, I love the swings we are getting in the S&P. Opportunities are great right now. The flat sideways markets are harder to trade than this type of environment is.

Options and futures are not for everyone, in spite of the medias love affair with Oil and Gold nowadays.

[anxvariety]

“Well, If you want volatility, my daily trading service for Bond Futures has it, LOL!”

“I just am pointing out that futures trading has that kind of volatility every day.”

So what’s the difference between your service and the market ? I don’t understand..

I want to put the smallest amount of cash up front to realize the biggest gains.. Sure this approach can mean losing 100% of whats invested in the options, but you can lose 100% in a stock too and that would be alot more cash… This approach will allow me to put my safe money into something that I think is solid as metal.. gold… and I can stuff my pillows for an acid rainy day.

“It [newsletter] does not however, have volatility that extreme, unless it is maxed out irresponsibly.”

Are you saying you’re controlling your upside? Wouldn’t you be better off controlling your downside if risk is your concern? Either way, both are impossible…

I also think you’re jumping the gun saying that an option with a 300% gain is snynoymous with irresponsibility. COP(ConocoPhillips) is a 6x earnings stock and it’s NOV 60 calls have doubled in 2.5 weeks.

For anyone else reading that wants to know what the original purpouse of my message was.. it’s my perspective on how to park money, that is to put the least up for risk to try and get the biggest gains. A few weeks ago a respected poster here said they were going to pull the trigger(buy) on COP(ConocPhillips) stock @ $60.. this was the same day another person I know 😉 bought the COP NOV 60 options. I’ll do a quick comparison with abritrary amounts, so if anyone is interested they can compare the 2 scenarios.. stock vs. same stocks options.

Option buyer:
Puts up $5k(arbitrary comparison amount) on 6/6 for 733 COP NOV 60 options at $6.80
Today 7/3 the options are listed @ $9.20.

Net profit if sold now: $6743(current price x # of options) – $5000(cost) = $1743 profit

Stock buyer:
Puts up 14k(arbitrary comparison amount) for 233 shares of COP @ $60:
Today 7/3 the stock price is listed @ $66.82
Net profit if sold now: $15569(current price x # of shares) – $14000(cost) = $1569 profit

With 1/3rd the investment options investor earned about the same profit. To me, that’s reducing your exposure/risk… allowing you to park more money in whatever safe investments you choose.. for me that investment is gold and silver.

If you find a math error sorry.. I’m not anywhere close to perfect 🙂

[powayseller]

I’m the poster who bought COP at $60/share, and I haven’t checked the price since. It’s a long-term position for me, since I believe oil prices will keep rising. I subscribe to Zeal Intelligence (monthly newsletter only) and saw the Nov 60 call listed in the trades for the more frequent Zeal Speculator readers. You told me to get the Nov calls, but I didn’t for two reasons.

First, since I don’t subscribe to the Zeal Speculator, the source of the Nov COP call recommendation, I wouldn’t be informed when it is time to sell for some reason. If Zeal thought it was time to sell, they would mention it in Zeal Speculator, which I don’t get. They would not mention it in the monthly newsletter that I get.

Second, I am a conservative and amateur stock investor. I have only made Long purchases. I haven’t got the guts to branch into shorting, options, etc. Although your post made me think that I should study it.

It’s wonderful that you are doing so well in your stock positions. However, for amateurs like me with fears of going short and buying puts and calls, could you please post your losses as well as your wins, so beginners like me can see if this method works for more than one trade. I would like to know the downsides of buying calls.

Since options in the above example provided such a higher return than the long position, why don’t all the big fund managers and pros buy only options? It sounds like very little risk and a lot of upside, and if that is guaranteed, everyone would be doing it. I know there is no such thing as low risk and high returns, so what am I missing?

On a related note, I like and trust Chris Johnston’s trading service because he publishes his losses along with his wins. His losses are published on his trading service web page, at the top, for everyone to see. He’s an unemotional investor, who realizes trading involves wins and losses.

[rseiser]

I glanced over all your comments and wanted to leave some random answers:
-Parking money in gold? I would say it’s a valid approach depending on the amount and time. A few percent of one’s assets never hurt, since there is always the risk of central bankers turning lunetics. Besides that it’s usually a good time when interest rates are below inflation (e.g. the last few years) or when no alternative yields are present (probably a few more years). I am sure, latest when they stop raising rates, will be a good time too.
-Don’t buy CEF before checking the premium over net asset value. If it’s above 10%, you are buying against a strong headwind of possibly shrinking premium.
-This brings me to the next suggestion: Never, ever, throw away 5-10% additonal gains by thinking you can make 30%. People making 25%/year have become the richest people in the world, and they were very smart people. If you don’t use tax advantages or pay too much premium for options or futures, it is very hard to outperform in the long-run.
-Know your edge and limitations. If you use a trading system that does not earn a fundamental income (such as dividends, rents, interest, etc.), you are relying on gaining at the expense of other people loosing. But how do you know when to stop? When it stops working two times, five times, or when it has erased one year’s gains?
-I like writing covered options too. It keeps you disciplined and helps you get over some corrections or flat markets. But it has risks too, such as missing some big opportunities. For these opportunities, by the way, you also have to be ready and don’t tie up all your capital too early.

[Author]

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