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Strategies & Market Trends : Bob Brinker: Market Savant & Radio Host -- Ignore unavailable to you. Want to Upgrade?

To: E_K_S who wrote (13771)	4/14/2001 6:43:32 PM
From: BigShoulders	Respond to of 42834

Eric Re:I wonder what the results would have been if (1) rather than going to 65% cash (or all cash) based on his call (and incurring the long term capital tax event of 20% on a taxable account)but rather going to 40% cash and investing the proceeds into a "short" hedge fund like the Rydex Dynamic Venture 100 or ProFunds UltraShort funds that would have generated a "positive return" during this cyclical bear market. The overall "net" portfolio loss would have been much less (if you also include the capital gain tax event). I believe Ultra Short is leveraged about 2 to 1 so in the scenario you describe, you would have little or no exposure to equities (except for the difference in characteristics of the long and short investments). So you would have a taxable event on the 40% long position you sold to buy the Ultra short. Then you would have approx 0% return on the long/short positions. When the market turns and you sell your Ultra short to raise cash to go long you have a taxable gain (possibly short term gain as opposed to long term). I think you would have to run the numbers to see which is better. I think the clear winner is if you can make trading moves within tax deferred accounts. Investments that you plan on holding long term and have low dividends and capital gains payouts are better suited to taxable accounts. Investments with potential high capital gains payouts and high dividends are better suited to tax deferrd accounts. Until a few years ago I had believed that tax deferred 401k and IRAs should be invested conservatively and for the long haul and not traded. (After all this is what all the investment compnies say and what our 401k plan people say). But, if you are a knowledgable investor and if you are going to be trading stocks and mutual funds anyway, tax deferred accounts are the best place to do this.