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Hello Paul,
I use good metrics in stock screeners for screening stocks with good fundamental values, but this past year their values went up and down like a yo-yo and now I'm just under breaking even from what I originally invested at the start of that year.
The year before that I had a lot of money invested through a registered investment adviser,(RIA), with over three decades of experience charging a 2% management fee. I had a total gain that year of only three hundred and eleven dollars after management fees. I couldn't believe it. It seems that people are buying and selling from hearing or reading just the least bit of positive or negative news in the markets. It's like investors are manic or paranoid.
I do have a job and am 59. It's enough to support me and I have enough saved money to invest besides that. Since the meager returns I experienced both the years I was invested through my (RIA) and this past year that I've invested it all myself, I've been wondering if I'd be better off forgetting this bi-polar stock market and switch to learning and becoming proficient enough in internet marketing to search for underserved niche markets and create some profitable websites. I'm beginning to think having some small businesses, like one can start up on websites with a shoestring budget may make more sense and produce as much income as investing in the stock market.
Another thing I learned about investing in companies is their accountants can "cook the books" to make their finncials appear better. I also heard where brokers or financial and investment advisors can put their client's money in ETF or mutual funds and stocks within companies that pay the broker or investment advisor an increasing monetary 'kickback' for the investment advisor's or broker's future orders. It might be legal but maybe unethical when the investment advisors or brokers could have invested their client's money into companies which would produce greater gains.
So tell me Mr.Henneman;in the present market environment does it make more sense to use my invesrment funds to keep buying stocks and bonds, or maybe start a side business or businesses such as online or affiliate marketing to help support myself in my coming retirement years?
Not looking to argue or debate here at all..just in the process of obtaining a few different opinions.

Thank you greatly.

Mike E.

Answer
Mike,
  Thank you for your question! Its a good one, and a tough one.

My approach, and that of my equity research company, is that investors need to be diversified and always invested in the market.  The main reason is that no matter how much people tell you otherwise, you can't really predict markets. No one really expected the 30% return that the major market indexes achieved this past year.
My company only provides research on stocks, so first a bit on diversity.  Even though we only work with stocks, we believe strongly in diverse investment portfolios. So this means bonds, and other investments.  I like your small business idea. It is risky, most small businesses fail, but as long as it is not a major portion of your worth, it is a great way to diversify. Speaking personally, I own stocks, bonds, and have invested in several real estate properties that are rented out, along with investment grade life insurance that achieves a minimum positive return no matter what the markets do.  I also own my business, further diversifying me.

Now for the stock market: that 2% fee you were paying sounds extraordinarily high. Usually 1.5% is considered fairly high.  I can offer that most RIA's that i have met are not worth much. Their goal is to manage as money as possible to earn the fees, so they spend most of their time chasing new clients, and only a small portion research what to do with your money. There are exceptions of course, not all are bad.

With markets as strong as they were last year, it is unlikely to continue, and the most likely scenario for 2014 is a pull back. So the odds are against you. Again is impossible to say for certainty (the more sure someone is about the stock market, the more you should run away).  Thats our research opinion at ValuEngine based on the complex computer models we run, and data on nearly 8,000 stocks we produce. Our strongest portfolio, and aggressive portfolio of 20 stocks, is up about 50% over the past year. But we have all but stopped marketing it, because we think its not going to continue. We do have a dividend stock portfolio that is more conservative, and a market neutral portfolio that we feel are more appropriate for 2014.

So, I'd say alway stay in the stock market. But take a defensive position, definitely have bond investments although I believe in bond ETF's and mutual funds. This is because interest rates are likely to go up in the future, and you don't want to be stuck with individual bonds. ETF's and mutual funds will slowly adjust to higher rates, so your bond portfolio will adjust. And they are very liquid, like a stock.

Small business activity, bonds, and stocks. Thats fairly diverse. If you can throw some real estate in there (you can buy real estate centered ETF's or mutual funds for example if you don't want to go through the huge hassles and expense of buying and renting property), you would be fairly diversified.

You could continue to actively trade your stocks. But its very hard to beat market performance consistently.  If you feel the time is not worth the return, then general S&P500 index ETF's such as ticker SPY would serve you well. You could change how much you allocate to bonds and stocks depending on general economic conditions. Don't follow the herd, but if conditions are excellent like today with 30% returns over the past year, time to get defensive.

I hope that general discussion helps you think about it, please do not hesitate to reply if I can offer anything addition.  Take a look at www.ValuEngine.com to see what we do if you are interested, there is a 1 month free trial.  Sorry, had to get a pitch in. There are several free newsletters that could be helpful, the free weekly newsletter may be of most interest. We would be happy to get you signed up for that, no cost.

Best Regards,
Paul

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Paul Henneman

Expertise

I can answer any questions on investment strategies. Specifically, my expertise lies in long term investment strategies designed to beat market performance while reducing risk. Not get rich quick schemes, but solid investing strategies. DO NOT SEND ME YOUR HOME WORK QUESTIONS! Over one half of the questions I receive are clearly students in finance or economic classes asking for answers to their homework questions. Most of these come from India. I won't answer them, do your own work. However, I welcome all investors trying to negotiate how to invest in stocks, mutual funds, ETF's, and other investments.

Experience

15 years in a leadership role at a financial research company. We sell research to institutions such as Wells Fargo, Fidelity, Thomson Reuters, Bloomberg, Bank of NY, Scotia Bank, and others.

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Florida International University, University of Florida

Past/Present Clients
Wells Fargo Advisors, Fidelity, Scotia Bank, Thomson Reuters, Capital IQ, Factset, Bloomberg, Bank of NY, CBSMarketWatch, Hoovers, Multex, Yahoo Finance, Zacks, Earthlink Finance, numerous large institutions and hedge funds, subscribers to www.ValuEngine.com

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