How to Double Your Profits Whether the Stock Market is Up or Down
By: john McClure | Posted: 12th July 2006
Copyright 2006 Equitrend, Inc.
In today's sophisticated investment world, investors now have the opportunity to double the performance of the major stock market indexes by using the enhanced index mutual fund offerings of two families of mutual funds, Rydex and ProFunds.
By using this strategy, investors can amplify their returns for the same outlay of investment dollars and so accelerate their portfolio's growth.
The Rydex and ProFunds Families offer what are commonly known as enhanced index funds. Like regular mutual funds, enhanced index funds invest in various stocks and underlying major indexes like the NASDAQ 100, Dow Jones Industrials and S&P 500. But they also invest in derivative products like futures contracts and Equity Index Swap Agreements to leverage their returns and provide gains or losses that equal 200% of the underlying index.
Enhanced index fund investing is a sophisticated strategy that can significantly magnify your returns when used in conjunction with proper money management and a robust trading system.
Enhanced Index Funds Explained
The two categories of Enhanced Index Funds are commonly known as "bull" funds and "bear" or "short funds." When buying a bull fund, the investor takes a bullish position that the market is going to rise. When buying a bear fund, the investor is taking a position that the market will decline because bear funds gain in value if the underlying index declines.
Enhanced index funds allow the investor to increase gains in both up and down markets because of their ability to return 200% of the underlying movement of the index.
Therefore, they provide extra exposure to an index with less investment capital so you can free up assets for other investments. While they can provide accelerated gains, they will also generate accelerated losses if the investor is on the wrong side of the market.
Potential Advantages of Enhanced Index Funds
--Double the gains of the underlying index in both up and down markets
--More market exposure without increased investment cost
--Can be used in qualified retirement accounts to short the market which can't be done with most other shorting vehicles
Potential Disadvantages of Enhanced Index Funds
--Leverage will maximize losses if invested on the wrong side of the market
--Increased volatility due to derivatives
--May not be suitable for all investor
--Lack of flexibility; cannot be traded during trading day; end of day pricing
--Tracking error; enhanced index funds may vary from underlying benchmark and so may not deliver 200% returns in relation to underlying index
Are Enhanced Index Funds Right for You?
Enhanced index funds are suitable for investors who seek an aggressive investment tool and who want to outpace the potential gains of the underlying index.
They offer the investor greater exposure and potential profits without an additional cash outlay and so allow the investor to maximize returns.
Before utilizing enhanced index funds, the investor must honestly determine his or her ability to accept volatility and risk; but used wisely and in conjunction with a proven trading system, enhanced index funds can be a valuable and profitable addition to your portfolio.
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John M. McClure is CEO and President of EquiTrend Inc., a stock market timing system that averages 42% profits per year. Mr. McClure is also a Registered Investment Advisor and President of the National Association of Active Investment Managers.
http://www.equitrend.com
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Tags: dow jones, investment capital, investment world, investment dollars, index fund, futures contracts