Dealing With the Ups and Downs of Investing

Inverse exchange-traded funds (ETFs), which effectively bet against a particular index, may be useful in various strategies. You can use long-short strategies to dampen portfolio volatility and look for excess return from a selected investment.

Suppose, for example, you think that IBM will outperform the tech sector. In that case you might go long IBM stock and buy an inverse ETF linked to a technology stock index. That will produce profits if IBM outperforms, regardless of how the broad tech sector does.

If you go to Websites like www.etfconnect.com that list exchange-traded funds, you can recognize the inverse ETFs because they are the ones with the word "short" in their names.

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Stocks That May Be In Recovery

For the past few years, health care stocks have looked rather sickly. Large pharmaceutical companies were losing patent protection on their biggest money makers and, at the same time, were getting little return from their research and development spending.

Today, though, this industry is undergoing an innovation renaissance. All that money which was spent on R&D is on the verge of creating a whole host of profitable new drugs as well as equipment.

There are at present 334 drug compounds in the final stages of clinical trials in the U.S.; that's an increase of 24% from 2002. The big companies that haven't been developing new drugs on their own have been buying smaller ones that have. And health-care takeover spending is on a pace that may set a record in 2008.

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Stocks On Sale

Forbes magazine claims that it's ridiculous for 60-year-olds to say they won't be able to retire because of the market's downturn. History has seen many similar bear markets and yet folks have kept right on retiring.

The average bull market, of which there have been 10 since World War II, takes stocks up 150% before the cycle turns. The average 12-month rebound from the bottom is 36%. Stocks simply don't go down and stay down.

Unless you were an adult as World War II ended, stocks today are cheaper, adjusted for tax rates and interest rates, than they've been in your adult life!

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Working On The Railroads

High priced energy has started to put a dent in corporate profits, but most of the nation's top railroads have moved right along with strong sales and earnings in 2008. Rising demand for transporting food and coal keeps things rolling along.

The four railroad companies in the Dow Jones Transportation Average have seen their stock prices increase an average of 34% this year. And the good times may continue because it costs less to transport goods by rail than by truck.

A railroad industry group claims that trains can move a ton of freight 431 miles on one gallon of diesel, which is about three times as far as a truck can.

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It's Like Money In The Bank!

Struggling banks, desperate for money, are ratcheting up CD rates, which many healthy banks feel compelled to match. You can find one-year CDs with yields over 4% and five-year CDs paying in the neighborhood of 5.12%.

Such plump yields put Treasuries with similar maturities to shame. One-year Treasuries were yielding just 2.19% while five-year issues averaged 3.21%. The advantage in yield is more than enough to compensate for the tax advantage that Treasuries have. Investors pay full tax on CD interest while interest from Treasuries is exempt from state and local income taxes.

The yield advantage at banks is because investors are willing to forgo yield for the safety of the Treasury. You can shop for the highest yielding bank CDs at www.bankrate.com.

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