One side of Couch Potatoe and A Barrel of Crude to Go Please!

I have a connundrum. I am perplexed at what style of trader I should be. Although I enjoy the thrill of the daily chase in the markets and individual stocks, I am not sure my personality can handle the ups and downs, anxiety and panic, and momentary thrills cut short by the sudden gap downs in stocks I was certain would be winners (ie. RGEN).

Too Much Noise!

I have been listening to too much noise. "I have an awesome mutual fund, check it out." "My ETF investments weathered through 2009." "My grandfather made his fortune in penny stocks." "Diversify, don't put your eggs in one basket." What does all of this mean? Do I diversify and invest in everything?

Then I'll just order one couch potatoe portfolio to go please, with a side of gold bars and a barrel of crude!

I have some money. I want to invest it. It is currently burning a hole in my trading account. I bought some stuff. The stuff hasn't moved. I made some profits on a couple of small tech plays and one mining venture. Then I bought some ING mutual funds, some index ETF's and although I have green on my screen, there are small bits of red that bug me and plague my mind with fear of failure.

I want to automate my investing to a comfortable level of regular contributions to some basic things like mutual funds and broad market ETF's. But I also want to enjoy the ride of trends, the thrill of the venture pops and the occasional volatile day trade. Am I crazy?

Is this bipolar psychotic trading?

What I've decided to do is hedge my bets. I picked some funds with 4 to 5 star performance over three years to focus one half of my investments on a regular basis with a 33% bonds, 33% Canadian Equities, and 33% Other (mostly US Equities) split. Of the remaining 50% of my savings, I decided to allow the market and a couple of my favorite gurus drive these decisions. So half of my investing is a no-brainer process that I will try to rebalance semi annually and use cost averaging to help weather any falls in the market.

The other 50% is the fun part. I can't seem to decide if the penny stock world, the sector trend investing, or value investing is the way for me to go. I have a moderate to high risk tolerance for this 50% that I would otherwise probably spend on stupidities anyhow. So I am going to create a program for myself. Not a computer program, but a set of regular activities, analysis and predefined reactions to execute my plan.

Pick Some Pros to Do The Work

I've nailed my Gurus to 3: Tony Turner, whose club I have decided to join; Ron of the Doityourselfinvesting.com duo, whose newsletter/club I recently subscribed to; and The Motley Fools who are just plain cool and whom I want to invite to dinner!

I'd love to get in on all those penny stock millions, but honestly, I don't have time to sit and watch my screen on intraday charts, sweat bullets or cry in my soup. Kudos to those warriors with the constitution for that, but I will pass.

So, feeling confident with my decisions and plan, ING will run my RRSP and TFSA with their Streetwise Funds; I have some small bits of this and that over at TD in the e-series funds for my youngest daughter's college days which are still a far way off; and as for the rest--it's time to get cracking and figure out what to buy and when.

The Fun Part: shopping!

Stop Jumping In and Out of Success!

Why jump in and out of stocks at the wrong time and lose money? Whether you are making investment decisions based on your own analysis or using the expertise of others to guide and direct your investments, it's important to examine your past performance to see if your style and plan are actually working. Many financial "advisors" suggest buying and selling various managed funds, while other "experts" tout the snatch and sell on the run method. A common complaint in messages boards and blogs across the net is that of "missing out" on a trend, catching it on the wrong side of a peak or valley, or simply always being one step behind the action--playing the bench instead of enjoying the profits of a trend. Do it yourself investing can be a frustrating path to financial gain if your purchases are disjointed, incoherent or irrational.

Consider An Automated Plan

You've heard this before: set your goals, make a plan, stick to the plan, reassess the plan, rebalance. That's all fine--but it still requires you to do the research, analysis, make the selections and execute them. Financial advisors can do this for you. Fund managers are supposed to this for investors. And there are several online services that provide similar input into your investing activities to take the guesswork out of what to buy, sell, and when.

Single Instrument Investing

There are thousands of mutual funds--either passively managed using indexes, or more actively managed with specific equity allocations--which allow you to invest in a diverse collection of stocks and/or bonds and let your money sit and grow. The problem with many mutual funds is that over 80% of them don't tend to beat the various indexes in which they invest, and often come with significant management fees (MERs) that can chew up 2 to 3% or more of your annual profits. Other companies have designed pure index funds requiring low maintenance and thus lower MERs. ING Direct Canada, for example, offers a selection of Streetwise Funds which aim to replicate Canadian indexes in various proportions of bonds and stocks depending on your investment needs. The company suggests we "invest early, invest often and stay invested", using cost averaging to spread out the cost per unit of the fund and spread the risk of investing over the entire market with low management fees of around 1%.

A variety of exchange traded funds are also available with broad market diversity which serve to expose investors to various markets, various sectors and with optional amounts of bonds and equities, all which can be traded directly on the market like a stock. Some examples of these ETF's which can be purchased individually to replace a diversified mutual fund include these two iShares funds:
XCR: Conservative Core Portfolio Builder seeks to provide a combination of income with the potential for long-term capital growth.
XGR: Growth Core Portfolio Builder seeks to provide long-term capital growth by investing primarily in equity securities and to one or more alternative asset classes, with the balance invested in those that provide exposure to fixed income securities.
Claymore, Horizons and BMO offer similarly diversified ETF's.

Sleepy Portfolio Options

The original Couch Potato Portfolio was designed for investors who want to expend the least amount of energy into their investments by choosing a collection of index mutual or exchange traded funds and rebalancing them from time to time, but at least annually. Find the couch potato portfolio options here.

Memberships in Managed Automated Portfolios

Folio Investing is an American company that offers a portfolio of stocks, ETF's and mutual funds which can be traded in a single transaction. They offer multiple investment strategies based on collections of instruments and even allow you to customize within an strategy if you chose to exclude certain sectors or companies for personal or political reasons. For example, you can elect to delete any companies from a certain group of equities that might be involved in alcohol, tobacco, gambling, weapons, genocide or nuclear power. I really dig their website for its simplicity and attractiveness and functionality. They have a cool questionnaire tool that helps you determine what portfolio to buy based on risk, investment objective, time to retirement and sector interests. Check it out here.

Membership in Self-Directed Do It Yourself Investing Groups

One of my absolute favorite finds of the last few weeks has been doityourselfinvesting.com. The monthly membership service costs $10 at the writing of this blog which gives you a newsletter, regular portfolio updates and any alert notices that you'll need to take action on should urgent buy or sell signals present for equities or ETF's in the core portfolios suggested. They offer 4 portfolios currently: an equities portfolio for the US and one for Canada, and 2 similar ETF portfolios for the Canada and US. They publish their stats, previous holdings, performance and some back issues of newletters which are quite interesting and educational. I was most impressed with their performance during the last flash-crash which far outweighed that of any index fund, most mutual funds and the majority of single ETF's or equities. I highly recommend taking a look here.

Happy Investing!

Disclosure: the author owns shares in ING Streetwise Mutual Funds, is a new member of Do It Yourself Investing, invests in a couch potato portfolio using TD e-series funds, owns shares in XCS - S&P/TSX SmallCap Index Fund and does not own shares of XCR or XGR.