There's no way to eliminate risk 100% when it comes to investing.
I can't do it. You can't do it. (And if anyone tries to tell you otherwise, take your money and run.)
There's just no such thing.
Yet, unbeknownst to most investors, there is a way to make any investment "risk-free" under the right circumstances using one of my favorite Total Wealth Tactics: the "free frade."
Not only does this remove risk from your portfolio, but it means you can potentially build profits faster, more consistently, and more securely than you might think.
Doing so is a critically important concept given current market conditions and a bull market that, as of Sept. 19, is 3,117 days old and has run more than 237% off March 9, 2009, lows.
We're long overdue for a correction… a correction, I might add, that you don't have to fear if you understand what we're going to talk about today.
This is your moment of truth.
You can read today's column and bin it, or you can rethink what you know about what it takes to achieve the kind of life-altering profits that make the financial future of your dreams possible.
Of course, I'm hoping that you'll choose the latter.
The way I see things, no investor ever has to suffer the ravages of a market correction – let alone a bear market – if they're prepared.
The concept is nothing new.
The allure of risking nothing and gaining everything has been around for centuries…
…the Tulip Bulb Crisis of 1634-37
…the South Sea Bubble of 1711
…the Florida Real Estate Crash of 1926
…Bernie Madoff's Ponzi scheme
So, why is it that you hear the term "risk-free" in widespread use today?
Because Wall Street only associates risk with loss.
That's why you're led to believe that U.S. Treasuries and other government paper are risk-free investment choices, even though you and I both know there are risks inherent in every investment.
It's a game of semantics.
It's also a game, incidentally, that Wall Street's big traders desperately want you to play because it forces you to implicitly buy off on the most profitable strategy of all (for them) – diversification.
No doubt you've heard that term before – just probably not like I'm about to explain it to you.
"Diversification" Is a Marketing Tactic, Not an Investment Strategy
Diversification is the idea that if you spread your risk around in different asset classes and investments – like stocks, bonds, cash, real estate, and the like – you'll be better off. The thinking is that not everything can possibly go down at once.
Like risk, diversification is a concept that's been around for a while.
In fact, the theory was first noted in the book of Ecclesiastes, written around 935 B.C.
It's also mentioned in the Talmud. Even Shakespeare picked up on it in "The Merchant of Venice" hundreds of years ago.
The problem is that it doesn't work.
At least not like legions of Wall Streeters keen to separate you from your money would like you to believe.
Ask anybody who got their portfolio halved twice in the last 15 years – first during the dot-bomb implosion from 2000-03 and then the ongoing financial crisis that kicked off in 2008 with a vengeance.
"Everything" went down at once… both times, and people who were "letting their winners run" got taken to the cleaners.
Don't take my word for it, though.
Warren Buffett notably quipped that diversification "makes very little sense for those who know what they are doing."
The legendary Jim Rogers famously observed that "diversification is something brokers came up with, so they don't get sued." To which he added in a 2016 Business Insider interview on the subject, "if you want to get rich, you have to concentrate [your assets] and think differently."
I agree very strongly.
Wall Street doesn't want you to put all your eggs in one basket because – they'll tell you – it's riskier. To which I reply, "for you," because spreading your money around means they earn higher commissions, they have a greater number of opportunities to pick your pockets, and they can prey on your worst fears.
I believe you've got to think about risk differently in today's highly computerized and interlinked global markets, especially when it comes to how you handle your winners.
Again, Mr. Rogers and I agree.
He notes – and I'm paraphrasing – that you want to put all your eggs in one basket… just make sure it's the right basket, and watch it carefully.
My logic isn't sophisticated.
Risk is not simply a matter of avoiding losses like many investors believe. Rather, it's an important profit management tool, which is how I encourage you to think about it.
Let me explain.
Speaking very bluntly, nobody I'm aware of ever went broke taking profits, but plenty of people have gone broke taking losses. So it not only makes sense to concentrate your assets using appropriate risk management, but also to harvest your winners when the markets are strong. That way you'll have opportunity at hand rather than be forced to run for the hills when the markets are weak.
Many investors have told me over the years at seminars around the world that this kind of thinking is only for "fat cats" or the ultra-wealthy.
In reality, the principles driving our discussion today are exactly the same no matter whether you've got $100 in your pocket or $100 million:
- You want to capture profits every chance you get; and,
- You want to take risk off the table at every opportunity.
Preferably, both at the same time.
Here's a Real-Life Example of How This Works
I recommended Raytheon Co. (NYSE: RTN) to my Money Map Report subscribers in August 2011 because it was closely tied into one of the single most powerful Unstoppable Trends we follow: war, terrorism, and ugliness. It was trading at $46.05 a share then.
By November 2013, the company's stock had risen to $85.19, and dividend payouts had reduced the cost basis to $42.51, so subscribers who followed along as directed were sitting on returns of at least 100% ($42.51 x 2 = $85.01).
The same "free trade" scenario just occurred for members of the Money Map Report who followed along with the Vanguard Wellington (VWELX).
On Sept. 19 the fund closed at $41.98, which means they got the opportunity to enjoy yet another triple-digit winner of at least 100%.
Technically, 100.19%… but what's a few percentage points between friends?
The Wellington is still a great buy. I call it my "desert island" fund because it delivers a steady stream of income with a dividend that's 19% stronger than the average S&P 500 company's yield and has never missed a quarterly dividend going back as far as 1980. Even better, it belongs to a select class of investments known as "26(f) programs."
These "26(f) programs" give investors the opportunity to earn aggressive monthly income combined with huge lump-sum payouts. You can potentially get paid $2,000… $5,000… even more… every month for the rest of your life. Enroll here.
In keeping with what I've just explained, I recommended selling half the position to capture profits and redeploy the proceeds into subsequent recommendations. I also suggested that they let the remaining shares run because they were now "paid for."
I call this a "free trade," because you not only get back your original investment, but you maintain all the upside you can handle, essentially "for free." Even better, because you've now recovered the initial cost of your investment, you can stay in the game with not an additional dollar at risk… even if the stock you've just harvested has a sudden reversal in fortune and goes from hero to zero.
Most investors can't say that.
How many times have you seen investors buy something and then rub their hands together with glee as it rockets higher… only to cry into their beer when prices reverse and the value of their holdings tank?
If you're like me, it's lots.
Heck, you may have even made the same mistake – which is a really important reason to rethink what you believe you know about profits and the risk associated with racking 'em up consistently.
Anyway, back to Raytheon.
About the Author
Keith Fitz-Gerald has been the Chief Investment Strategist for the Money Morning team since 2007. He's a seasoned market analyst with decades of experience, and a highly accurate track record. Keith regularly travels the world in search of investment opportunities others don't yet see or understand. In addition to heading The Money Map Report, Keith runs High Velocity Profits, which aims to get in, target gains, and get out clean. In his weekly Total Wealth, Keith has broken down his 30-plus years of success into three parts: Trends, Risk Assessment, and Tactics – meaning the exact techniques for making money. Sign up is free at totalwealthresearch.com.