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"Sell everything except high-yield bonds… investors should be afraid."
This is the financial advice that economists at the Royal Bank of Scotland Group Plc. (NYSE: RBS) gave clients on Jan. 8.
When I heard this, I just shook my head.
While there are a lot of reasons to be concerned, given the market sell-off, there's an even bigger concern that's coming right from those who deem themselves to be financial experts…
These are the same experts who believe it is smart to sell everything except for high-yield bonds… when interest rates are rising…
This type of advice could be catastrophic in 2016.
The fact is, there are moneymaking trades when the markets are up… and down.
The key is researching thoroughly, planning well, and executing perfectly.
And of course, avoiding what could be the worst mistake others will make this year.
Selling Everything Now Could Ruin Your Year
I am not a registered investment advisor, nor do I want to be.
I am a trader, but I also understand why people choose to invest. And not just in stock, but also in real estate – whether it be homes or property or both.
I love being able to trade. I love trading options. I love showing you my trading style, what I look for when entering and exiting positions, and empowering you to be able to do the same, should you so choose.
So when I hear that financial professionals who manage peoples' money are telling their clients to "sell everything, it's going to be a catastrophic year," I just shake my head.
When it comes to investing in the stock market, there is certainly some merit to having a portion of your money working for the long term – call it retirement. Find a company (or companies) you believe in for their sound financial profiles and characteristics they possess that are the most important to you.
Then just keep an eye out to make sure that they continue to keep these characteristics for as long as you do. If something changes, be willing to accept that reality and move on to others that better fit your profile.
Here's how I see the numbers shaping up for 2016…
The Global Economy Isn't Great
The issues in China aren't to be downplayed. Concerns about the economy once more started the year when China reported a weak manufacturing number. But the concern isn't just the economy – it's the currency, too. If the Chinese currency, the renminbi, continues to be devalued, it could place further tension on trade.
I could go on and on about China, as well as other countries' problems, but I bring up China to make this point: I believe foreign money will be invested in the U.S. markets. It's already been reported that Chinese companies and individual investors are moving their money overseas.
So consider the U.S. markets as the best of the worst. But money coming in will provide some demand for U.S. equities – and that's not the catastrophe that they're calling for.
High-Quality Bonds Drop When Interest Rates Rise
We are being told the U.S. economy is improving. The Fed, right or wrong, decided to raise interest rates in December, and there is the potential they may do it up to four more times in 2016.
Do you really want to be in high-quality bonds in a world of rising interest rates?
I don't think so.
If the economy is improving, that should help boost company bottom-line profits. And this is good for stocks. Be aware, though, that there is some talk of the Fed possibly rescinding that quarter point of a hike.
But let's say they stay the course…
Bond prices actually drop when interest rates rise. Keep that in mind, bond buyers… There are some stocks that are deemed attractive if, and when, interest rates continue to rise, such as financials.
2016 Will Be a Trader's Year
Risk takers should be ready to seize some commodity-based stocks, as there could very well be some great return opportunities in those stocks in the coming months.
If you want to remove the pressure of finding or picking out the best stock or two, consider a commodity-based exchange-traded fund (ETF) as an alternative. A couple of examples of an ETF in energy or oil are the Market Vectors Oil Services ETF (NYSE Arca: OIH) and the United States Oil Fund LP ETF (NYSE Arca: USO).
There are plenty of oil and energy companies from which to choose, but they don't necessarily track the underlying commodity as the futures contract or the ETF itself does.
If you need or want to be more conservative, you might favor utility stocks, like the Energy Select Sector SPDR ETF (NYSE Arca: XLE). This was the only sector positive for the month of January.
My assessment for this year is that it will be a "trader's year." So short-term opportunities make much more sense to me than the "buy and hold" approach.
There is something to be said for investing, as I said at the beginning. But I'm going to keep using the approach that's been the most successful and most precise for me: using options to move my money in and out of the markets.
My experience, my technical tools, and my options research tools allow me to assess, analyze, and execute this process of making money in the markets, no matter which way the markets are going. And this is what I want to share with you.
So stay tuned because over the weeks and months to come, I'm going to give you the tools and strategies you need to profit in the market – catastrophic or not.
This "Advice" Could Cost You Everything: Quick, easy methods of snagging big gains are always tempting. Pundits are campaigning for one such strategy, but following this advice could be the worst decision of your trading career. In fact, this options "deathtrap" is the surest way to lose all your money in 2016…
About the Author
Tom Gentile is one of the world's foremost authorities on stock, futures and options trading.
With more than 25 years' experience trading stocks, futures, and options, Tom's style of trading systems and strategies are designed to help individual investors propel themselves past 99 percent of the trading crowd.