For those waiting to buy: What are you using to hedge your money?

I

irvine_grad_IHB

New member
What is everyone using to hedge their money against the housing bust and the resulting recession? My friend and I have been discussing this recently and we haven't really come up with a good hedge against the coming recession.





Our ideas so far:


US Stocks/Mutual Funds - Unsure of performance


Emerging markets - Doesn't look feasible. Too many economies (namely China) are intertwined w/ the American economy.


Gold - Traditional hedge again'st inflation. Don't know if this is going to work because of the recent run-up.


Silver - See Gold


Other random commodities - Don't know much about this.


Cash position - OK but returns are not going to be stellar.
 
<p>irvine_grad - I am not making any recommendations and I encourage you to do your own research. Check out the CGM Focus fund ticker CGMFX. I posted an article I think in the bailout topic about the fund manager Ken Heebner's opinion on the housing market. The Focus fund was up 80% from 2000 to 2002. If you find any other fund that had that performance in that time frame please let me know. He shorts stocks when the time is right which hedges for a down market. Here's the article:</p>

<p>http://www.bloomberg.com/apps/news?pid=20601103&sid=aonDdgoWQ.pg</p>

<p>Also take a look at the Janus Contrarian fund ticker JSVAX. It has done well for me.</p>

<p>Like I said I am not recommending anything and if you do choose to invest in any of these funds only you are responsible for that decision. </p>
 
<p>So far, I've avoided the temptation to try anything "cute" with my savings. The reason? It's my downpayment fund. My time horizon is much too short for me to be able to ride-out any kind of volatility.</p>

<p>I suppose if it's your retirement portfolio you're talking about, all bets are off. </p>
 
Look into the exchange traded fund





<a href="http://finance.yahoo.com/q?s=SRS">SRS</a>





It is the ultra-short real estate fund from <a href="http://www.proshares.com/">Proshares</a>.





I also like OC_Fliptracks idea of using <a href="http://www.everbank.com/main.asp?affid=eb">Everbank</a>. Storing money in Japanese Yen will probably turn out well.
 
Thanks everyone for the suggestions! I'm trying to decide what would be the best thing to do with the money I'm saving for a down payment, given the market conditions.





graphirx: Don't worry, I don't take stock/investing recommendations at face value anymore. I learned my lesson in HS during the .com bust. Compared to today, I didn't have much to lose, but it still hurt!
 
<p>OC is right it depends on your time horizon if you are 3+ years away funds and ETFs would probably do best. I learned a lot from dot bomb too and that is when I found the CGM funds. There are plenty on high paying savings accounts out there and I like the Everbank idea too. As long as you beat inflation 3.5% you are doing well. </p>
 
<p>irvine_grad,</p>

<p>If you decide to put your money in CD, I suggest be careful with those that pay unusually high CD rate. I still remembered when the Savings and Loans guys went burst.</p>

<p>See guys, wherever you put your money, you are at mercy of someone's else. That is why I am a real estate bull, at least I can see what's going on.</p>
 
<p>Mine are with E*Trade Complete = 5.05% ... EmigrantDirect gives the same savings rate.</p>

<p>I have toyed with the idea of putting some into Prosper.com and selecting only the top grade of borrowers ... but wonder about the underwriting of Prosper ...</p>
 
in general, its impt to keep in mind relative returns, not absolute, as well as risk. otherwise you're comparing apples and oranges. focus fund is a capital growth product. while it's true that it was 80% from 2000 to 2002, the question to ask is, what did other similar products do during that time? for example if you compare the focus fund with vanguard's capital opportunity fund (VHCAX) they basically had the same performance. and vanguard funds are generally the cheapest to buy in most cases.





http://finance.yahoo.com/q/bc?s=VHCAX&t=5y&l=on&z=m&q=l&c=CGMFX





to irvine_grad: if we're talking about any significant amt of money that, it should be diversified. it's not a question of stocks vs savings acct. all of our listed ideas are perfectly acceptable investments. it's the allocations that matter. if it seems like you're looking for some sort of balance between return and risk (given that u find stocks risky and savings unimpressive) then invest some in each and allocate accordingly.
 
"See guys, wherever you put your money, you are at mercy of someone's else. That is why I am a real estate bull, at least I can see what's going on."





what are chances of a cd blowing up? also even most of the internet banks that offer the high rates are fdic insured. i know exactly what a cd will return in 6 months but can anyone guess the resale value on a particular property half a yr from now?






 
irvine_grad,





My wife and I are tracking the Irvine real estate market looking for an opportunity to purchase later this year or in 2008. We are holding our down payment money in money market and savings accounts. Countrywide's Savingslink offers 5.40 APY for balances of $50k+ (<a href="https://bank.countrywide.com/landing/sl4.aspx?src=CFCTL001D003&tier=50000&time=52">https://bank.countrywide.com/landing/sl4.aspx?src=CFCTL001D003&tier=50000&time=52</a>).





To hedge against the looming bear market, we modified our long-term investments by transferring most of our holdings in growth and S&P 500 stock funds into large-cap value funds and income (dividend paying) funds. We increased our stake in value funds because we trust that a competent fund manager will take advantage of the buying opportunities created by bear markets that will pay off down the line. The dividend-paying stocks/funds strategy for bear markets is outlined here <a href="http://www.fool.com/investing/dividends-income/2006/03/14/how-to-beat-the-coming-bear-market.aspx. ">www.fool.com/investing/dividends-income/2006/03/14/how-to-beat-the-coming-bear-market.aspx. </a>
 
nir, true but technically, accts at diff institutions and under diff names (single, spouses name, joint, childrens name, trusts) all count separately.





but my main pt was that i disagree a CD, even one a smaller institution, is more risky than RE. as i mentioned in my prev post, it's a risk and return relationship. a savings acct is about as riskless of an investment as you can make. a CD offers a slightly higher return in exchange for a bit of higher risk because you're tying your money up.


if savings and CD suddenly became riskier than other assets, say RE for ex, while still offering a lower rate of return, we would be talking about an unprecedented event in the history of modern banking. everyone would be pulling every penny out of savings, cd's, money mkt accts, etc and banks would go insolvent. but of course it'd take 2 secs for hedge funds to jump in and arbitrage out any opportunity there was!





anyway that was overly dramatic... heh
 
<p>Interest income from Treasury bills is exempt from state income tax. They could be a good option for some people.</p>

<p><a href="http://www.treasurydirect.gov/">Link to TD</a>.</p>

<p><a href="http://www.fatwallet.com/t/52/588518/">T-bills discussion</a>.</p>

<p> </p>

<p>Recent tax equivalent yields for CA (9.3% state tax)


(All rates calculated for various marginal federal income tax rates)





TERM (days) .................................. 28 ................. 91 ................ 182


ISSUE DATE ......................... 04/19/07 ......... 04/19/07 ........ 04/19/07


Unadjusted APY....................... 5.053% .......... 5.103% .......... 5.136%


Itemizers (deduct state tax)....... 5.571% .......... 5.626% .......... 5.662%


Non-Itemizers @ 15%............... 5.674% .......... 5.730% .......... 5.767%


Non-Itemizers @ 25%............... 5.769% .......... 5.825% .......... 5.863%


Non-Itemizers @ 28%............... 5.803% .......... 5.860% .......... 5.897%


Non-Itemizers @ 33%............... 5.868% .......... 5.926% .......... 5.963%


Non-Itemizers @ 35%............... 5.897% .......... 5.955% .......... 5.993%





Note: Calculations are for the highest California tax bracket.</p>

<p> </p>
 
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