My Personal Finance Blog

The best investment strategies for 2011 and beyond will reflect the new realities in the world of investments: better safe than sorry. Diversification is the key to good investment strategies, but as the future unfolds finding the best alternatives in each investment class could get a bit tricky. Here’s a basic guide geared to making life easier for average investors, which includes most of us.

The challenge facing investors today: how to put together the best investment strategies to make your money can grow without too much risk. Stock funds and bond funds are always part of the mix for most folks, and so are good safe investments. Looking down the road, there could be more trouble in the world’s debt markets; and America’s plans to stimulate a luke-warm economy by lowering interest rates to new lows might not have the intended effect. So, let’s look at how to stay out of harm’s way in 2011 and beyond in case another shoe drops, starting with what are and what are not safe investments.

Going into 2011, bonds and bond funds were like magnets for people who wanted higher interest income in relatively safe investments. Compared to other alternatives investors got higher interest income, but many people don’t understand the safety issue. Truly safe investments are fixed in nature, pay interest, and do not fluctuate in value. Bonds have a fixed interest rate but fluctuate in value as they trade in the open market. Bond funds have worked well for average investors over the years as interest rates have fallen to historical lows. Don’t push your luck here.

The flip side: when interest rates and/or inflation heat up bond funds holding long term bonds in their portfolios will be anything but safe. They will lose significant value. Your best investment strategy here is to go with intermediate and short-term bond funds. You will make less in interest income, but these funds are definitely safer than long term funds. Money market funds are safe and will pay higher interest income as rates rise. There’s only one problem with them for 2011. Unless or until interest rates take off, they are paying next to nothing.

The real challenge until rates move up is in finding good safe investments that pay a respectable rate of interest… without locking in a rate for too long. No one could have predicted mortgage rates at less than 5% or 5-yr CDs at less than 2%, but it happened. Your best safe investments might not be found in mutual funds in 2011, but you may be overlooking some options elsewhere. If you are in a retirement plan (like 401k) you may have a fixed or stable account available. If you own a retirement annuity or universal life policy it may have a guaranteed minimum interest rate. In either case the interest rate could be quite attractive relative to other options.

Stocks and bonds are still the cornerstones of a good investment strategy. And for the vast majority of people mutual funds are the best way to invest in both. We’ve discussed how to move toward a safe investment strategy in bond funds. With stock funds we can do this in two different ways: by increasing diversification and by favoring conservative funds with a good history of paying dividends. We’ll start with the latter.

When the economy and/or optimism are growing, growth and small-company stock funds are often the best investment. These funds can grow dramatically in value as stock prices run up, but they rarely pay much in the form of dividends. In times of high uncertainty equity-income funds that invest in high-quality dividend paying stocks can be a step in the safe direction. If the market goes south they should be less volatile on the down side, and the dividends they pay can cushion the blow somewhat.

The best investment strategies for stock (equity) funds in 2011 and beyond will focus on increasing your scope of diversification. Too many Americans own general diversified equity funds that only invest in U.S. stocks, and ignore the rest. One of the best ways to get more diversification is with international and global equity funds. Another way is to add specialty stock funds to your portfolio. Gold funds have been one of the best investments for several years, but history shows that gold can get real cold real quick. Don’t put more than 5% of your investment dollars in gold funds. Consider natural resources, real estate, and basic materials specialty funds as well to add even more diversification.

The best safe investment strategies going forward will focus on reducing risk in the stocks and bonds department, while getting the best rates available on the truly safe investments in your portfolio. With increased diversification you can lower your overall risk and still make your money grow over the longer term. If another financial crisis rears its ugly head… you now have investment strategies geared to the safe side to keep you out of major trouble in 2011 and beyond.

We’re all shopping for good safe investments for 2011 and beyond, but be careful in your search for the best. Some that look like good investments aren’t safe at all. Others are just relatively safe.

Good safe investments have been scarce for years as interest rates have fallen to record lows. In 2011 and beyond the future course of interest rates could separate the best from those that only appeared to be good investments. Here we define safe or fixed investments, and then look into the average person’s best alternatives in each of the three basic categories on the safe side of the fence.

Safe investments are fixed in nature vs. variable investments like stocks, real estate or commodities. Your income or interest rates, principal, or both can be fixed and maybe guaranteed by the government. You are basically acting as a money lender to a borrower like a bank, government entity, or a private enterprise like a corporation. In any case, the borrower offers terms for payment of interest and for repayment of their debt to you. Your three basic choices in the safe or relatively safe investments arena: CASH EQUIVALENTS where only your PRINCIPAL (money invested) is fixed, BONDS where only INTEREST RATES are fixed, and SAVINGS VEHICLES where BOTH principal and interest rates are fixed for a period of time.

Taking them in order, the first category is often simply referred to as CASH. Examples include bank savings and money market accounts, and money market mutual funds that invest in high-quality safe short-term money market securities for their investors. Safety with high liquidity is the signature here. You can get your principal back intact quickly and easily. These will be especially good investments for 2011 and beyond if interest rates go up because your interest income is not fixed and should follow suit. Your best investments here will be money market funds where your interest income automatically goes up with interest rates. Banks raise rates at their own discretion.

Bonds have fixed interest rates that do not change for the life of the security. They pay higher interest income and were good investments for years as rates were falling. These are basically long-term debt securities that trade in the open market like stocks do. Bonds promise to pay back your principal when they mature… but maturity can be 20 or 30 years away. Meanwhile your principal or the value of your bonds will fluctuate. The longer the term until maturity the greater the influence of changing interest rates. The value of bonds will fall if rates go up in 2011 or beyond, which only makes them relatively safe investments.

The best investments for the average investor in the bond department, looking down the road, will be short-term to intermediate-term bond funds. These hold bonds that mature in a few years vs. long- term funds with average maturities in their portfolios of 20 years or more. The latter pay more interest income and might look like good safe investments if you look at their performance records. But remember, the trend in interest rates could change drastically in 2011 and beyond. We’ve been hovering near all-time lows in interest rates and highs is bond prices. Don’t be the last to get the word when the party is over.

Some safe investments like bank certificates of deposit (CDs) and Savings Bonds come with fixed interest rates (for a period of time) and government guarantees for safety of principal. If the rate offered on a certificate or promissory note looks too good to be true, check to assure that it’s insured by the government. Some advertisements are misleading. The best investments here simply amount to shopping for good interest rates without locking in a rate for too long. If rates go up and you liquidate early you face penalties. Stagger your maturities. If you lock in a rate of 2% for 5 years or more, you won’t be a happy camper if rates go north. For the very best investments here look to your stable or fixed account if you have a 401k or other retirement plan that has one.

Finding good safe investments for 2011 and beyond can best be accomplished by putting together your own package consisting of the best investments from each of the three safe and relatively safe options just discussed. For most people this means a combination of money market funds, shorter-term bond funds (with average maturities of 7 years or less), and CDs with various maturities. This way you can make the best of it while interest rates are low – without putting yourself at significant risk if rates take off in the not too distant future.

The free forex robot we are going to look at is free and makes money, yet most traders never consider it. Lets look at how and why it works but despite this most traders wont use it…

Automated Forex trading systems are big business online – but the vast majority don’t make money. They simply promote paper track records which fail in real time trading and destroy the traders equity.

The one we are going to look at here has worked in real time and many of the top traders have used it in their forex trading strategies, to make big profits.

This is a simple system it only has one rule to follow. The system was devised in the seventies by one of the great traders Richard Donchian, who used it to trade commodities markets.

It doesn’t just work on commodities it works on any trending market and currency markets are therefore ideal, as they offer excellent trends.

Let’s take a look at the rule of the system which is called the 4 Week Rule.

Buy a new 4 week calendar high – stop and reverse the position, on a break of a new 4 week calendar low and then look to stop and reverse again on a new 4 week calendar high and continue to do this always keeping an open position in the currency.

That’s it and while incredibly simple, it works for the following reasons.

It’s based on breakout methodology

It’s a fact that most big trends, start and continue from new market highs or lows, so this forex robot will make sure you are in on all the big trends and profits.

Long Term Trend Following

It’s based on catching and holding the long term trends.

A look at any forex chart will reveal trends that continue for many months or years and this trading system will keep you in them without getting bumped out by short term volatility.

It’s Totally Objective and Disciplined

You don’t have to think or make subjective judgements; you get a clear cut signal which you simply execute in the market.

It’s Time Efficient

It will take you around 15 – 30 minutes a day to operate and that’s it, you can go and do something else.

Like any forex trading system it will have a weakness and this one will generate losses, when markets don’t trend or are in periods of consolidation, so you can consider adding another exit rule:

Place a stop at a one or two week high or low and then go flat and wait for the next signal.

This can help combat a non trending market but whichever way you choose this free forex robot will make big long term gains.

Most traders don’t even consider this system, even when they know it works!

Why?

Quite simply because they think it’s too simple (even though all the top trading systems are), also it’s not a system that goes for pinpoint market timing and many traders want to predict highs and lows, even though its obvious this is not possible.

Finally, it just isn’t packaged nicely – you get no flashy box, or name that indicates it’s vicious animal, or a load of garbage sales patter.

For some reason traders will buy forex robots that have never been traded but one that can make them money – they ignore it!

If you want to make money in forex trading, this free forex robot will help you and you should try it. The system doesn’t cost you anything and has been used for over 20 years by numerous traders, to improve their forex profits and it can help you achieve forex trading success too.

When it comes to forex-based technical analysis, using the relative strength index (RSI) indicator or your chart can give you insight into potential trading opportunities.

First, let’s talk about what the RSI is, how it is set up on your chart, and how it can be used to decide when to enter the market.

The RSI is an oscillator, meaning that it will be separate from price data but still on the same chart and it will go up and down (oscillate) in value from 0 to 100.

When it comes to setting up your RSI indicator on the chart, the most popular setting is a 14-day period, though it is possible to tweak this setting to fit your own strategy.

Keep in mind though, that the longer the period is on your RSI indicator, the less frequently it will give trading signals, though the signals that it does give can be considered more reliable.

If the period is much shorter (like 8 or 9 instead of 14), the oscillator will be much more volatile and can give false signals more frequently, so it is important to find a balance.

Now when it comes to actually reading the RSI for trading signals, there are two main methods of doing this. With the first one, the values 30 and 70 are of critical importance (remember the RSI always gives a value between 0-100).

Typically, the lows and highs of the RSI will be below 30 and above 70, so when the RSI reaches this level and stays there, you can be sure that when it changes direction and heads closer to 50 then you will see a trend or market reversal.

For example, you are using a 10-minute bar chart and 14-period RSI. You see that the RSI has crossed the 70 line, moved to around 80 for maybe 40 minutes, and is now climbing back down. This could be a good indication that the market prices will follow and this could be a good time to sell. Your indication to enter would be when the RSI crosses 70 and continues going down.

The other popular way to trade the RSI is to use the number 50 as a center line or deviation line. This means that when the RSI crosses the center line and continues to climb steadily, this could be an indication to buy.

Conversely, if the RSI crosses the center line and continues to decline steadily, this could be a good indication to sell.

One important thing to always remember when you are using the RSI indicator on your charts is that the main purpose of this oscillator is to convey the current strength of the market, and whether or not a trend is likely to continue or reverse. Happy Trading!

Many traders use numerous indicators – but over the last 22 years I have four favourites and I will share with you here and they have worked for me and they will work for you. Let’s look at them…

Today, good old bar charts have gone out of fashion but I think their essential and use them in conjunction with the indicators below. I don’t use candlestick charts, there is a big myth there better but there not. If you like using them, then do so but the relationship between the daily range open and close is obvious.

Here are the four indicators and you can read more about them in our other articles. There available on most free chart services and will take you around 30 minutes each to learn and then, your all set to start using them on your forex chart and start making bigger profits.

1. The Stochastic

For me this is the ultimate timing tool.

Trading stochastic crossovers with bullish or bearish divergence, into chart resistance or support, from overbought or oversold levels, is simply the best market timing tool. If the stochastic crosses from chart highs or lows the signal is even more powerful.

2. Relative Strength Index

This gives you the strength of the trend and when RSI weakens or strengthens, when the trend is still up or down, especially from over bought or oversold levels, you have advance warning of a contrary move.

When combined with the stochastic, you have a great combo for better market timing.

3. The Bollinger Band

Gives you the volatility of price and you simply need to understand it to make money at forex trading.

I love using pops to the outer band, near chart support and resistance, to look to take profit or, initiate a contrary trend. Also in a strong trending market, dips back to the centre band ( the moving average) are great value areas to look to add extra positions in a strong existing trend.

You don’t time with them – you look for areas in line with support and resistance to trade into.

4. Moving Averages

Simple moving averages are great and I have just mentioned the mid band of the Bollinger band, which is in fact a simple moving average, to buy and sell back to in existing trends.

In strong trends dips to the 18 – 25 day moving average are a great place to load in new trades.

Another excellent time period is the 40 day moving average which acts as the last line in a strong trend with nearby support or resistance. In strong trending moves we like to trail our stop behind this level and it keeps us in the long term trends.

When trading with the above and support and resistance lines you will get market timing for your trading signals.

There are some other useful technical indicators and we like the ADX line and the MACD too – but the above are the four we use all the time. If you spend 30 minutes on each one you will soon have four powerful indicators that you can use in your own forex trading strategy, to seek currency trading success with.

Check them out, there simple, powerful and can work for you too with a little practice.