Things have not changed much since last week, when we recommended putting some money into biotech. Both biotech and gold still look good, with biotech looking better than gold. All of the markets are that we follow remain so risky that we are keeping most of our money in the money market.
Monthly Archive for February, 2010
The S Fund (“Extended Market”), which invests in small and medium cap stocks, appears to be outperforming the other two stock funds. However, as markets are still unstable, we are pulling out of stocks completely in our Conservative allocation.
Both biotech and gold, which we recommended last week, look good, though biotech looks a little better for the coming week. Over the past week, both of these funds have made about 2.5%, compared with about 1.5% for large-cap stocks.
Your market timing could not be better. You I listen to.
-C.N.
Though gold hasn’t moved since mid-December, we are trying it again as it, once again, appears to be the best option. Runners up include Malaysia and Consumer Staples.
Question: I agree completely w/ moving funds into cash, as your latest newsletter recommends. I noticed the hyperlink for cash, and following it, see that “cash” means a money market fund w/ a 2% assumed return. Where are you banking? The money market funds are all returning the federal funds rate right now, about 0.1%.
I also see in your list that your don’t have a tbills fund in there. I’d recommend running ishares’ SHV [iShares Barclays Short Treasury Bond Fund] through your algorithm, possibly as an alternative to cash.
Response:
MMF, not “cash”. I should clarify it in the newsletters that “cash” means “money market fund”. Thanks for pointing that out.
Assuming a 2% return. As you know, in November, I modified the ETF newsletter to make its performance verifiable by a company called TimerTrac. For the newsletter to be verifiable, the recommendations I give have to be consistent with the choices that they allow. They give me four choices as to what “money market fund” means. Of the four, I think only two make sense for the newsletter: cash with no interest or MMF with a 2% assumed return. I am going with the latter.
Interest rates vary depending on economic conditions. Sometimes, like now, they are well below 2%. Other times, they are well above 2%. For example, consider the historical performance of Vanguard Prime Money Market Fund (VMMXX). Over the past 5 years, its annualized return has been over 3%; since its inception in 1975, its annualized return is over 6%. Because of this, I think that over the long-term, 2% return is a more accurate representation of money market rates than 0%, and that’s what I’m going with.
As for current rates, according to Bankrate, you can get a savings account with as high as 1.70% APY. Though, of course, it’s tricky to send your money back and forth between a bank and a broker.
SHV. That I only have two bond ETF’s in my list is also due to the limited choices offered by TimerTrac. In addition, it makes things easier to have one fund in the list that is completely risk free. SHV is not risk free as it can and does decline in value.