Dollar Cost Averaging: The Easy, Low Risk Investing Strategy

Dollar Cost Averaging: The Easy, Low Risk Investing Strategy

Dollar Cost Averaging

Investing in the stock market involves a lot of unpredictable factors. So many first time investors get scared off by not knowing what stock(s) to buy at what time. Timing the market is a daunting task, but thankfully there are strategies that take timing out of the investing equation. Dollar Cost Averaging is an investment method that mitigates the risk of timing the market by dividing up initial investment over time. The concept is simple. Rather than trying to buy low and sell high, the investor picks a fixed incremental dollar amount to allocate over time.

Dollar Cost Averaging Example

For example, Investor A wants to invest $5000 in stock XYZ. He decides to buy 100 shares at the current price of $50 per share. His friend, investor B decides to buy $5,000 of stock in the same stock, but $1,000 at a time on the first day of the next five months (dollar cost averaging). Stock XYZ Prices: Month 1: $50 Month 2: $45 Month 3: $40 Month 4: $48 Month 5: $52 Month 6: $60 By month six, Investor A has $6000 with a $1000, or 20%, net return. Investor B however, has a total equity of $6,437 for a net return of nearly 29%. Investor B took advantage of the changes in price in order to net greater returns by splitting up his initial investment over time! By fixing a dollar amount invested per month, Investor B was able to buy more shares at lower prices and fewer shares at higher prices. Not satisfied? Let’s take a look at a real stock: Tesla.

Dollar Cost Averaging in Real Life

Tesla June 15, 2018 – October 29, 2018

Investor A decides to invest a lump sum of $50,000 into Tesla on June 15th, 2018 at a price per share of $354. Investor B also decides to invest $50,000, but in increments of $10,000 on the 15th of each month. June 15: $354 July 15: $312 August 15: $342 September 15: $289 October 15: $260 Current Price: $333 At the current price, Investor A has actually lost money. His initial investment of $50,000 is now worth only $47,034. However, Investor B, who bought $10,000 worth of Tesla stock on the 15th of each month now has $54,146 for a net positive return of 8.3%. While no investment method is foolproof, dollar cost averaging lowers risk for investors with long term investing goals. It’s not going to get you rich quick, but it is a smart way to make the most of changes in stock prices over time. Try dollar cost averaging with your Wall Street Survivor virtual portfolio today!

Conclusion

Every investor should understand dollar cost averaging. Investing a fixed dollar amount in increments, instead of a fixed number of shares, helps you buy more shares when the stock is down and buy fewer shares when the price is up. This way, your average cost is reduced and you make more money in the long run. Take the risk out of trying to “time the market” and just make sure you are investing a some each month!

Leveraged ETFs: How to Maximize Short Term Returns

Leveraged ETFs: How to Maximize Short Term Returns

Leveraged ETFs: The What

There’s always more to know when it comes to investing. Leveraged ETFs are a relatively new financial tool that, while somewhat complex and high risk, can be extremely advantageous if used correctly. A leveraged ETF is a fund that is designed to track a specific index while simultaneously multiplying its returns. Using a combination of derivatives and debt, leveraged ETFs attempt to maintain a constant multiplier, most commonly 2x or 3x the returns of the underlying index. Investors most commonly use leveraged ETFs when there is an all but certain change in market conditions. Because they are a high risk and high cost investment vehicle, they are mostly used over short term spans with high certainty. Leveraged ETFs exist for the entire investment spectrum, from 2x Bull S&P 500 ETFs to 3x Bear Natural Gas funds. Through these funds, one can speculate on bonds, commodities, currencies, real estate, stocks, and more. Today, I’ll highlight some funds to watch in each major category of leveraged ETFs. I’ve broken the following ETFs into categories according to which type of assets they leverage. Each group contains notable funds that stand out in Total Assets, Year to Date return, or Average Volume. Click on the ticker symbol to trade on Wall Street Survivor, and click on the full name of each fund to see more data.

Leveraged Equity ETFs

  1. TQQQ– ProShares UltraPro QQQ:
This fund is the largest leveraged equity ETF by Total Assets with $4,091,080,000 invested. It is 3x leveraged and tracks the NASDAQ 100 Index.
  1. DUST– Direxion Daily Gold Miners Bear 3X Shares:
Up 82.54% this year, DUST profits when the NYSE Arca Gold Miners Index isn’t doing so hot. It’s called a “bear” fund because it acts in the inverse direction of the index it tracks.
  1. SQQQ– ProShares UltraPro Short QQQ:
The opposite of TQQQ, SQQQ is an inverse leverage of the NASDAQ 100. This fund gets a lot of action, with an Average Volume of 15,828,582 trades a day.
DUST: Yahoo FInance
DUST: Yahoo Finance

Leveraged Commodity ETFs

  1. UCO– ProShares Ultra Bloomberg Crude Oil:
UCO has the most Assets Under Management of any leveraged commodity ETF with $390,068,830. It is a 2x leveraged fund tracking the Dow Jones-UBS Crude Oil Sub-Index.
  1. DSLV– VelocityShares 3x Inverse Silver ETN:
It’s been a solid year for DSLV with an incredible YTD return of 63.01%. Although it’s expensive to bet against the S&P GSCI Silver Index, thus far in 2018 it’s been worth it.
  1. UWTI– VelocityShares 3x Long Crude ETN:
This hot commodity fund trades over 22 million times a day. It tracks the S&P 500 GSCI Crude Oil Index.
DSLV: Yahoo Finance
DSLV: Yahoo Finance

Leveraged Bond ETFs

  1. TBT– UltraShort Barclays 20+ Year Treasury:
Lots of money in debt. Nearly $1.7 billion in this fund. UltraShort and sweet.
  1. TTT– UltraPro Short 20+ Year Treasury:
As far as bonds go, a 16.26% YTD return is phenomenal. That’s what you get when you inverse leverage the Barclays Capital U.S. 20+ Year Treasury Index.
  1. TMV– Direxion Daily 20-Year Treasury Bear 3X– 2nd in YTD (14.99%) and Volume (587,883)
Another bear fund, TMV is up 15% this year and trades almost 600,000 times a day.
TTT: Yahoo Finance
TTT: Yahoo Finance
The above ETFs are by far the most common classes of leveraged funds. So check them out and figure out how each one could help you maximize your portfolio profits! If you’re interested in more unique funds, here are a few more to cut your teeth on!

Leveraged Currency ETFs

  1. EUO– ProShares UltraShort Euro: Highest Total Assets ($170,540,000)
  2. DAUD– VelocityShares Daily 4x Long USD vs AUD ETN: Highest YTD Return (24.59%)
  3. YCS– ProShares UltraShort Yen: Second highest in Avg. Volume and Total Assets

Leveraged Real Estate ETFs

  1. MORL– ETRACS Monthly Pay 2xLeveraged Mortgage REIT ETN: Highest Total Assets ($481,000,000)
  2. URE– ProShares Ultra Real Estate: Highest YTD Return (3.23%)
  3. DRN– Direxion Daily Real Estate Bull 3x Shares: Second in Avg. Volume and YTD Return

This Is The BEST Stock Newsletter

One of the benefits of using HowTheMarketWorks is that we do a lot of your homework for you so we can help you make more money! We subscribe to a few dozen stock market newsletters, and then we make their recommended trades in virtual trading accounts. While we do buy all of the stocks that the services recommend, we don’t always make the trade exactly when we get the recommendations. Like you, we are busy doing other things. We eventually get around to making all of the trades, and they are usually within a few days of getting the recommendations.

The Best Stock Newsletter:

Based on our dozens of paper trading portfolios, the best stock newsletter over the last 24 months was the Motley Fool’s Stock Advisor. This service recommended stocks like SHOP (up 158% since we bought it), NVDA (up 120%) and MAR (up 97%). To have a stock portfolio that performs well, you MUST have a few stocks like these that double or triple in value. This Motley Fool service has a habit of picking these 2x and 3x stocks! As recently as August 2018, the Stock Advisor recommended stocks such as PAYC (up 43.39%), FICO (up 25.77%), and OKTA (up 57.05%). Percentages are thru August 14, 2018. In our paper trading portfolios, we used 8% trailing stops to minimize risk of any poor picks. This trailing stop also helped us take profits on any high fliers that might have had a significant pullback. The Fool’s marketing campaign for this service says their portfolio is up an amazing 348% since inception, compared to the SP’s 81%. See the graph below that shows their return versus the S&P500’s return over the same time period. It seems impossible right? But now we see that a lot of their picks do double or triple in a short period of time.

The Best Stock Newsletter:

Based on our dozens of paper trading portfolios, the best stock newsletter over the last 24 months was the Motley Fool’s Stock Advisor. This service recommended stocks like SHOP (up 158% since we bought it), NVDA (up 120%) and MAR (up 97%). To have a stock portfolio that performs well, you MUST have a few stocks like these that double or triple in value. This Motley Fool service has a habit of picking these 2x and 3x stocks! As recently as August 2018, the Stock Advisor recommended stocks such as PAYC (up 43.39%), FICO (up 25.77%), and OKTA (up 57.05%). Percentages are thru August 14, 2018. In our paper trading portfolios, we used 8% trailing stops to minimize risk of any poor picks. This trailing stop also helped us take profits on any high fliers that might have had a significant pullback. The Fool’s marketing campaign for this service says their portfolio is up an amazing 348% since inception, compared to the SP’s 81%. See the graph below that shows their return versus the S&P500’s return over the same time period. It seems impossible right? But now we see that a lot of their picks do double or triple in a short period of time. Best of all, the Motley Fool currently has this stock newsletter on sale. It usually costs $299 a year, but they currently are running a too-good-to-be-true promotion of just $19 a month or $99 a year. That is a very reasonable price to pay for such solid stock picks in this stock newsletter. They also have a 30 day, 100% money back guarantee. You should definitely try it for 30 days! To get their next stock picks at this discounted price, you must click here. We recommend that you review their picks and analysis carefully. Make sure you buy in slowly with the expectation that over a year you should have 10-20 stocks in your portfolio. Do NOT put all of your money in their first few stock picks!

BEST STOCK NEWSLETTER CONCLUSION:

Based on the last 24 months of performance, the Motley Fool’s Stock Advisor is the best stock newsletter available. Best of all, it is currently on sale for just $19 a month or $99 a year. If you are looking for solid stock picks to add to your portfolios, this is where you should start. Click here to get this special price. If you are still not satisfied, then read this Motley Fool Stock Advisor Review and get even more information.

*August 9, 2018 Update:

A key aspect in selecting a good newsletter would be its consistency in suggesting undervalued stocks. To evaluate this, the HowTheMarketWorks team kept on trading the Fool’s stock picks. Here are some recent highlights from our portfolios for David and Tom’s recommendations since December 2017:
David’s Portfolio Highlights
Company Suggested Price Paid Last Price Return
OKTA January + April 2018 34.93 57.23 63.84%
ILMN January 2018 248.76 337.32 35.60%
FICO March 2018 169.71 213.73 25.94%
AMZN March + April 2018 1585.52 1898.89 19.76%
ADBE April 2018 221.90 254.95 14.89%
 
Tom’s Portfolio Highlights
Company Suggested Price Paid Last Price Return
NFLX February 2018 (trailing stop order activated) 264.18 361.99 37.02%
VRNS March 2018 (trailing stop order activated) 58.25 75.25 29.18%
SHOP May 2018 138.76 163.53 17.85%
APPN July 2018 32.30 34.69 7.40%
IRBT Dec 2017 (trailing stop order activated) 64.30 87.08 35.43%
One of the most recent suggestion by the Fool’s Stock Advisor is Appian Corporation (APPN:NASDAQ). In nearly two weeks, it has achieved a return of 7.40% in our portfolio and we believe there is still a lot more room for growth. On the 2nd of August 2018, Appian reported its Q2 results with a 39% revenue growth due to a “combination of new customer acquisition, a 119% subscription revenue retention rate among existing customers, and a one-off perpetual software deal. This figure grew much faster than management had previously predicted” (Source: MotleyFool News & Updates). Thanks to our friends at Motley Fool, we were able to get an early seat and capture APPN’s growth.
The Fool’s marketing campaign is still supporting its claim that it can beat the market. As of right now, the Fool’s Stock Advisor is averaging a 347% return since their inception, while the S&P has a 80% return.

How to get Their Next Stock Pick

Investing in the S&P can be advantageous due to its simplicity in investing in a diversified portfolio. However, we are confident that the Motley Fool’s Stock Advisor service can generate greater returns with a small effort from the investor. When factoring the discounted price of the service and the return it generates (4 times Standard & Poor’s return), we believe the Stock Advisor is still the best stock newsletter service available in their price range. You can get the next stock picks from this newsletter by clicking here.

Best S&P 500 ETFs of 2018

Best S&P 500 ETFs of 2018
Today we’re talking ETFs. But not just your average run of the mill funds; today we’re talking about the best S&P 500 ETFs of 2018.

What are ETFs?

Over the past several years ETFs have blazed the trail in popularizing passive investing. ETFs, or Exchange Traded Funds, are securities that track a specific market (like a specific index or commodity). The funds are professionally picked and traded samples of the markets they wish to track. Because of their low fees, historically high returns, and high liquidity, they have become a trendy investment vehicle and offer a relatively low risk option to long term investors. But with all the big name investment firms scrambling to put together the perfect ETF, it becomes easy as a consumer to get confused among all the options. One first must decide what market they want to invest in, then must find the lowest costing and highest returning ETF in that market. So, to narrow the scope a bit, today we’ll discuss ETFs that track the S&P 500. Then, you can take the metrics used to compare the S&P 500 ETFs and apply them to other ETFs across markets. State Street Global Advisors’ SPDR (), BlackRock’s iShares Core (), and Vanguard’s S&P 500 ETF () are widely regarded as the three overall best ETFs tracking the S&P 500. Over the past few years, over $100 billion worth of investment has been channeled through these three funds. All three are professionally managed large cap funds with almost the exact same YTD, 1 year, 3 year, and 5 year returns. But, there are some slight yet possibly important differences that may affect which investors choose which fund.
Symbol ETF Name AUM (in billions) Expense Ratio YTD Yield AVG Volume (in billions) 1-Year Yield 3-Year Yield 5-Year Yield
SPY SPDR 267.29 0.09% -0.48% 20.95 13.22% 10.47% 12.86%
IVV iShares Core 152.67 0.05% -0.49% 0.89 13.3% 10.53% 12.93%
VOO Vanguard S&P 500 85.68 0.04% -0.53% 0.59 13.24% 10.53% 12.92%
 

So How are They Different?

The three primary differences among the funds are their assets under management (AUM), expense ratio, and dividend structure. AUM tells us the potential for how much volume can be traded, can indicate how successful a fund is over time, and how important that fund is to the firm that manages it. blows the other two funds out of the water with $267.29 billion under management with and holding $152.67 billion and $85.68 billion respectively. Largely this is due to the fact that and are newer funds, although clearly all three are well established due to their massive market caps. As an investor, if you care deeply about volume and historic reputation, AUM points to SPY, but again all three have a lot of clout in both metrics. On the expense ratio side of the coin however, comes up far short of its competitors. charges 0.09% management fee, whereas and charges 0.05% and 0.04% respectively. Again, not to be unfair to SPY, all three are relatively very low cost, but comparatively almost doubles the price of its competitors. The more money you want to invest, the more this number becomes important. But regardless, Vanguard and BlackRock offer the cheapest ETFs on the market. Finally, because ETFs trade like stocks, what do these three funds do with their dividends? and reinvest their dividends until the payout date, which is an extremely attractive perk to a long term investor. SPY does not. Technically and legally SPY is structured as a Unit Investment Trust and because of tax reasons must hold its dividends as cash until the payout date. This unit investment trust structure also means that the assets in SPY cannot be traded nearly as easily as the assets that make up or at any given time, making SPY less adaptable and flexible. The upside of the UIT structure is that it has potential to be much more tax efficient, meaning taxes affect the earnings of the managers and consumers less.  

Which do you choose?

Since September of 2010, the first month that all three funds existed simultaneously, SPY and IVV have outperformed VOO consistently. But, SPY is has almost double the expense ratio of IVV and does not reinvest its dividends. By the numbers, it seems the clear choice is IVV, a fund that balances an inexpensive management fee with high returns and a tactical dividend reinvestment structure.

Dogs of the Dow: The Simple Stock Picking Strategy that Works

Dogs of the Dow: The Simple Stock Picking Strategy that Works

Meet the Dogs

No question about it, investing is a dog-eat-dog world. Traders are constantly developing and revising strategies in order to make the most money in the stock market. Throughout time many strategies have come and gone, few sustaining any significant longevity. However, over the past decades, Michael O’Higgins’ strategy coined “Dogs of the Dow” has built a reputation as a relatively easy and dependable long term investment strategy.To understand the Dogs of the Dow, first you need to familiarize yourself with the Dow Jones Industrial Average. Created in 1896 by Charles Dow, the “Dow” is an index that tracks the performance of the 30 largest NYSE and NASDAQ companies. Since its inception, the Dow Jones has become arguably the most popular index and is the most common metric for measuring the overall health of the U.S stock market. Recognizing the how synonymous the Dow was with the performance of the broader market, O’Higgins sought out a strategy that would “beat the Dow.” In his mind, if you were beating the Dow then you were also beating the market, every investor’s ultimate goal. After some experimentation, O’Higgins settled on a simple set of steps. At the end of each year, calculate the dividend yields of each of the 30 Dow Jones’ stocks. Select the 10 stocks with the highest dividend yields and invest equal amounts in each of them. Hold the stocks and collect their dividends until year end and then repeat the process. Simple enough, right? So, if we do the calculations as of June 30, 2018, here is the Dow 30 ranked by dividend yield. The top 10 would be O’Higgins’ “Dogs”.

Dogs of the Dow (June 30th, 2018)

Stock Symbol Company Name Dividend Yield Closing Price Annualized Dividend
VZ Verizon 4.65% $50.75 $2.36
IBM IBM Corp 4.21% $149.24 $6.28
XOM Exxon Mobil 4.00% $82.01 $3.28
CVX Chevron Corp 3.68% $121.67 $4.48
PG Procter & Gamble 3.64% $78.73 $2.87
PFE Pfizer 3.64% $37.36 $1.36
KO Coca-Cola Co. 3.46% $45.11 $1.56
CSCO Cisco Systems 3.11% $42.40 $1.32
MRK Merck 3.07% $62.51 $1.92
JNJ Johnson & Johnson 2.86% $125.94 $3.60
WBA Walgreens Boots Alliance, Inc. 2.71% $64.93 $1.76
MMM 3M 2.70% $201.60 $5.44
MCD McDonald’s 2.57% $157.41 $4.04
CAT Caterpillar Inc. 2.47% $139.42 $3.44
TRV Travelers Co. 2.46% $125.18 $3.08
WMT Wal-Mart Stores 2.37% $87.72 $2.08
INTC Intel Corp 2.31% $51.98 $1.20
DWDP DowDuPont Inc. 2.30% $66.14 $1.52
UTX United Technologies 2.15% $130.36 $2.80
JPM JP Morgan Chase 2.04% $109.89 $2.24
HD Home Depot 2.03% $202.63 $4.12
BA Boeing Co. 1.92% $355.33 $6.84
MSFT Microsoft 1.61% $104.40 $1.68
AAPL Apple Inc. 1.52% $191.88 $2.92
DIS The Walt Disney Company 1.50% $112.13 $1.68
UNH UnitedHealth Group 1.42% $252.93 $3.60
AXP American Express 1.40% $100.17 $1.40
GS Goldman Sachs 1.39% $229.63 $3.20
NKE Nike Inc. 1.04% $76.95 $0.80
V Visa 0.60% $140.13 $0.84
  For clarification, a company’s dividend yield is the ratio of its dividend to share price. O’Higgins chose to select by dividend yield because he believed that Dow stocks set their dividend amounts based on the average worth of their company. This idea, paired with the idea that share price moves according to where a company stands in the business cycle, means that a high dividend to low share price ratio creates a perfect opportunity for investment. In other words, a high dividend yield communicates that a firm has high worth and a high potential for growth. Of course, this model is based on several key assumptions, but over time his strategy has consistently outperformed the Dow. It has proved to be an accessible and reliable model, perfect for new investors and long term traders. If you’re looking to get started in the stock market but don’t know where to begin, consider the Dogs of the Dow strategy. After all, numbers don’t lie.

5 Stocks to Buy Now

If you wanna get your feet wet with the Dogs of the Dow strategy, use your Wall Street Survivor account to buy Verizon, IBM, Exxon, Chevron, and Procter & Gamble. Try it out for size and, when year end comes around, think about using this strategy to start building your real stock portfolio!