Fixed Asset Allocation

In today's turbulent market, it is necessary for an investor to have a good plan to prevent a possible large financial loss in stocks. One way to do this is to allocate one third of your portfolio to shorting stocks, one third for long stocks, and one third for dividend stocks or bond ETFs. For example, if you have $9,000 to invest, $3,000 would be allocated to each group.

It will also be important to keep the gains or losses inside each respective group in your portfolio. For example, if you own TVIX, the double volatility index ETF, as a stock for essentially shorting the market, and the initial $3,000 investment gains another $3,000, the $6,000 stays in the shorting group. When TVIX is high, you could sell it and buy it back again whenever it hits a low point. In this way, you could eventually make a million dollars in the shorting group, and it would not matter then if your long stocks and dividend stocks all went to zero.

This plan will protect you from losing all of your money because the stock market cannot destroy a person in all three of these directions if you are buying and selling at reasonable levels. For example, I know a man at work who bought TVIX in the first half of 2011 for somewhere in the $20 range. Then, when the stock market fell apart in August and September of 2011 due to Congress failing on budget issues and due to European financial problems, TVIX went as high as $100 per share. My friend sold TVIX at $68 after his initial money tripled since the price increased over three times. He made around $20,000 profit in just a few months with a modest investment of around $10,000, and he closed his position with $30,000.

This situation will also be highly predictable for years to come. The world will be wrestling with financial problems until the end of time, and money can be made in the stock market simply by being in the right stocks at the right time. For example, if you are patient with TVIX, you can probably make 200% profit per year just like my friend did. The market volatility will only subside intermittently because the world's problems are too great. When TVIX is low, you can buy it with your allotment of shorting funds and sell it when you are up 50% or more. Every few months, this pattern can be repeated.

For example, if you make 200% on your initial investment of $3,000 on TVIX during the first year, you will have $9,000 in this part of your portfolio. In the second year, the $9,000 can be turned into $27,000 on the short side of the market while it does not matter what the rest of your portfolio is doing. You must maintain a separation of your assets because if one group fails, another one will succeed. Then, in the third year of trading TVIX, your $27,000 could make 200% more, and you will have $81,000. When this money is doubled twice in the fourth year, then you will leave the year with $243,000 in your account all made on the short side of the stock market.

So, the way to survive in a dangerous investing world is to divide up your assets and keep them separated from each other. There will always be a temptation to put all of your money on the long side or all short or all on dividends. Just do all three, and you will most likely have overall big gains in the stock market rather than painful losses.