Scott's Investments

Alternatives to Buy and Hold for Income Investors

It's a fair question - volatility in bond investments tends to be lower then in equities. However, I would read Faber's paper for some results - bonds (10 yr govt) using a timing model had an annualized return of 9.11% vs 8.75% on buy and hold from 1973-2008. The key is that the volatility was 7.6% vs 9.05% on a buy and hold. He doesn't have corporate bond results, but I would suspect lower volatility there as well.

Alternatives to Buy and Hold for Income Investors

Many finance professionals include TIPS as an 'alternative' investment along the lines of commodities, gold, absolute return funds, etc., since they tend to have a lower correlation to the rest of the bond market. TIPS have performed well recently and I think are a critical element to anyone's portfolio, high or low risk, to hedge against inflation and collect a little yield along the way.

Alternatives to Buy and Hold for Income Investors

Lightway: the commodities were included as diversifier - they often have very lower correlation to equity markets (in some case negative correlation). Obviously this portfolio took on a little more risk/desire for capital appreciation then a 90 year olds portfolio may take. I would suggest commodities to be at least at least a small portion of just about any portfolio, but obviously the total percentage could be adjusted based on risk tolerance/income needs.

Alternatives to Buy and Hold for Income Investors

Regarding the yields, they were all pulled either directly from the ETF provider website or in some cases yahoo finance. Obviously investors need to be aware of changing yields given the volatility of the market/dividend cuts as well as ex-dividend dates and frequency.

User329713: Your first question really is the crux of the issue - trying to time the market. I would pick a long term average and stick with it (100day+). For some performance data regarding the 100 day sma, see Merriman on fundadvice.com.

However, given the depth of the decline, for many indices there certainly is a lot of upside between here and the 200 day ema. I would highly suggest checking out Tom Lydon's site for one way to deal with this. A similiar strategy to Lydon's would be to do the following (which entails added transactions costs/potential tax implications/whipsaws/and some added risk to consider): Take 50% of what you would normally allocate to a position. When that equity crosses a shorter term MA (like the 65 day ema you mentioned, or more commonly the 50 day), use that as buy signal on the 50% allocation. If the equity crosses below the average again, sell. To avoid whipsaws, you could set a 1-5% buffer (you decide the exact #) on the average so the position would actually have to rise/fall 1-5% above/below the moving average before a buy/sell signal. Then, when the equity crosses the longer term average like the 200 day, buy with the other 50% you have allocated for that position. This would help 'catch' some of the upside when it happens while still limiting some of your risk.

Alternatives to Buy and Hold for Income Investors

I would use the daily function when using moving average strategies -