Investment U

Investment Risk: Lower Yours with These Five Strategies
By Steve Sjuggerud, President, Investment U

Dear Reader,

In the upcoming December 15, 2004 issue of the Oxford Club Communique newsletter, Alex Green will share a full report on investment risk, including his five simple investment tips to keep you in the money. Here’s a sneak peak.

Note: Alex Green was a mentor of mine years ago when I was starting out. He’s super-smart, witty, and well read. And he’s a great investor. I have a great deal of respect for him.

- Steve Sjuggerud, President, Investment U

For months, equity investors have been complaining about what a boring – and often frustrating – year this has been for stocks. Record high oil prices, soft retail sales, new terrorist threats and a grueling presidential campaign have taken their toll on stocks.

With this in mind, now is a good time to review our strategies for reducing your portfolio investment risk, and these five reminders can do more than anything to keep your money safe and your investments sound

#1) Buy quality.

In market downturns, you can reduce your investment risk by keeping in mind that dividend-paying blue chips hold up better than up-and-comers. Large caps will do better than small caps. And value generally does better than growth.If anything in your equity portfolio needs to go, look at your small-cap stocks, unprofitable companies and other more speculative issues.

#2) Diversify broadly.

Some members comment occasionally about the large number of recommendations in our Oxford Trading Portfolio. But it has two advantages: It increases your chances of holding a big winner, and it leads to less volatility than holding just a handful of stocks.

#3) Asset allocate.

We’ve beaten this drum so many times, I’m half expecting an invitation from the Choctaw Nation in Oklahoma. But it simply can’t be said often enough. Your asset allocation is your single most important investment decision. We currently recommend the following to lower your investment risk and come out on top:

• 60% of your money should be in stocks.
• 10% should be in high-grade bonds.
• 5% should be in real estate investment trusts.
• 10% should be in inflation-adjusted Treasuries.
• 5% should be in gold shares.
• and 10% should be in high-yield bonds.

#4) Follow our position sizing strategy.

Never invest more than 4% of your equity portfolio in a single stock – at least initially. There’s nothing worse than having a serious dent in your net worth simply because one stock fell out of bed.

#5) Use our trailing stop discipline to reduce investment risk.

Whenever a stock in our Oxford Trading Portfolio falls back 25% from its high – or from our entry price – we put out a Safety Switch Alert, telling you to sell at market to protect your profits or your principal.

This is simply a tool to cut your losses and let your profits run. I’ve never seen great results come any other way.

Looking over this list, you’ll notice there are no Fibonacci numbers. No urgent market signals. No prophesies of doom or euphoria. And that’s exactly the point.

The principles of successful money management have stood the test of time. They’re battle-tested. That’s why they’re principles not fads.

The Oxford Club recommended list is proof. We’re beating the market handily – and we’re doing it with much less investment risk than being fully invested in stocks.

Today’s IU Cribsheet

• Alexander Green is the investment director for Investment U’s parent organization, The Oxford Club and has recently launched Spiritual Wealth.

Good investing,

Steve

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