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It’s getting close to the time that people are going to realize that they need to adjust their investment philosophies to some extend to try to weather what is an ever changing financial market.   The old “buy and hold” mantra may work for some people with very long time horizons but those with shorter time horizons need to look at alternatives.

I see rough sees ahead as boomers retire and pull money out of market, no longer contribute to 401k accounts and draw heavily on government services like Medicare and Social Security.   Keep in mind that most states offer generous exemptions for seniors from things like property taxes, reduced state fees, and discounts on services so the triple whammy of loss revenue from seniors, loss of revenue from businesses (recession) and loss of revenue from  consumers (sales taxes, property taxes, etc).

Given all the “gloom and doom” possibilities it would be prudent to examine investing strategies and adjust accordingly.  If stocks always moved up like the graph below shows, then “buy and hold” would work well as it has historically.

stocksup.png

I honestly don’t see the financial markets moving in this direction over the next decade.  If you have a time horizon 30 to 40 years in the future then perhaps this strategy will work but you’d need to be in your 20’s for this strategy to work in my opinion.

The inverse won’t be of much help either.  If stocks will only go down over the next decade like the graph below shows then all anyone would have to do is simply short the market or buy bearish ETFs to rake in the profits.

stocksdown.png

Unfortunately, I don’t expect the stock market to move in a strictly downward direction just like I don’t expect it to move in an upward direction moving forward.

What I do expect to happen is a mix of thrusts up and thrusts down in the market like this graph:

stocknormal.png

In this environment, the optimum strategy is to hold a long position while simultaneously shorting that position.  In this case, profits are made during upswings with an automatic “cash out” exit during strong thrusts up and profits during the downswings as the short position becomes profitable.     If you’d like to take a look at this strategy in more detail, stop by www.ETFCoveredCalls.com to see how this strategy might has been working for me over the past few years.