Active long term ETF investing with 10% annual return
At every ETF buying transaction I will supply investors with a short term strategy and a long term return expectation. I also include a probability figure to obtain this return within 1 year.
So at the same time I am buying as well the short term ETF as the long term ETF. This is all possible in my strategy as I only get into a short term transaction if the long term looks positive too.
No old-fashioned passive long term investing
Years ago it was common to make an investment for the long term and just wait out 10 or 20 years in order to see what the total return has accumulated to. This kind of long term investing is outmoded.
The markets are turning in faster cycles and the possibilities the internet offers to active investors is huge. I still use the term long-term but I add the word “active” deliberately.
The long term way of trading I am talking about is intended for investors who do not want to get into too many transactions and by doing that keeping transaction fees low. On the other hand, the intend is also to make a nice annual return.
Annual return of 10% on average
We can make this return by trading different ETF’s. With different I am also implying differences in expected returns. Returns from the popular index ETF’s are not spectacular ranging from 5% towards 15% maximum.
At the other end of the risk/return scope, the raw materials and raw materials market sectors you may get returns up to 100%. At the country and other market sector ETF’s you may see returns of 10% to 30%.
But of course, as always, risk and return are closely related. So it would be too simple just to go for the high yield ETF’s. The right mix will eventually lead to a very interesting and stable annual return.
That is precisely why I follow 137 ETF’s divided among 12 groups. For a good and stable return you really need to follow 3 to 5 groups.
Since 2009 almost all financial markets are trading in a bull market. In a bull market shares tend to rise on a year-to-year basis. For the long term it is imperative that we need to stay in a strong bull market.
Only a strong bull market with strong dips within the span of a year’s trading may lead to a favorable long term strategy. If markets will not increase annually and opportunities do not arise to buy at occasional dips the annual return of 10% is not feasible.
This 10% is a goal with an action plan. The feasibility of our goals depend on the movements of the markets. You are able to look at the results of the past. Here you can see all transactions older than one month and they are free of charge.
This differs strongly from my short term strategy where I sell through limit orders. Here I will sell after pondering the right exit and of course I will take in the reached level of profit as one of my motives to sell.
Another major factor is the period of time I was into a specific trade. Furthermore I use a variable weighed probability calculation in deciding the right exit. I want to gauge if we have reached a top already or the chance of price increases is still more than likely.
Notes on selling
Contrary to short term exits I will give an explanation of selling my long term positions. I will give some insights why I am selling a position.
More or less than the expected return
The indicated return on investment I supply while entering a trade is always an estimation. It is impossible to forecast an exact return for the coming year. Many things may change in the course of a year. That is why I sell sometimes before the forecasted return is made or I will sell after making the forecasted return. I will explain this by giving some examples:
Suppose I will expect a return of 40% over 1 year. But after 6 months we are already making a return of 34%. However I expect that a temporary dip is probable. Then I will sell before the expected price drop will take place as it is wiser to reinvest the money from this ETF into another one with more potential.
Suppose I will again forecast a return of 40% over 1 year. In the beginning things do not go well and I am in a losing position for some time. But then, the price takes off and prices increase from the long term bottom.
Due to some lucky breaks I expect that higher returns than 40% are possible. Then it is possible that I will sell at a 50% return after 14 months. So it may happen that expectations and forecasts may differ in time and in returns.
My practice of trading
I will always trade 1 transaction for both short term and long terms purposes. With a short term sale I will always keep a small part of the position for the long term.
As I often trade the similar ETF in the short term these small parts I will leave on the table for the long term accumulate and I will sell the bulk in 1 exit for the long term. The attained return on investment I will share is the average of all these entries and 1 exit.
Suited for which style of investor
This long term strategy is particularly suited for investors who are not able to follow the markets on a daily basis. Also for investors with lower budgets will this strategy have its benefits. Transaction fees are lower due to less transactions and as a result it is possible to spread the budget among more ETF’s.
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