Six months too short to make up for losses

Dec 11th, 2008 – Comment

Hey Lou, First of all, I’m a big fan. I love listening to you and John together on the radio and personally, I think you should go for more airtime. Second, here’s the story: To make a long story short, I’m in my late 20′s, married with two kids. My wife and I managed to […]


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The current market condition, favors a trading strategy

Hey Lou,

First of all, I’m a big fan. I love listening to you and John together on the radio and personally, I think you should go for more airtime.

Second, here’s the story: To make a long story short, I’m in my late 20′s, married with two kids. My wife and I managed to build up a nice $80,000 chunk through various investments and business ventures.

Last October, we were $30,000 in mutual funds and 50 in cash. I went to my advisor and told him we were saving for a house. He suggested some Far East, Canadian resources, and dividend Funds. I asked if that’s even for the short term. He said how long. I said 6 months. He said it’s OK. Now I’m not going to put the blame squarely on him. I like being aggressive. Anyway, we haven’t sold any thing yet, but we’re still renting. Help me, Lou!

Adam

Hi Adam,

Thanks for your support it makes the effort that much more satisfying!

Sorry that the market has put a negative spin on your home purchase. You are not alone; many have had their plans disrupted by the credit crisis.

I think the first lesson to be learned is that the shorter the term of the investment the greater the risk. A six month horizon is too short a period to make up for losses.

When I advised people on their investments I always suggested cash or equivalent for short term investments especially if they had a call for the assets for a home purchase or college tuition.

My thinking was that it didn’t matter how much you could make but rather that the assets were available when needed.

The other lesson is that the current market condition, favors a trading strategy. The volatility is creating tremendous opportunities for those skilled at entering and exiting positions.

The chart shows that the TSX Index is trying to bottom and the MACD and RSI indicate a turn but let’s be clear it’s not a guarantee. I would suggest that you consider selling into strength and taking the tax losses to be applied against future gains.

Happy Capitalism!

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