| One of the key advantages to index investing is | | | | had much bigger gains than the index funds again. |
| that you can be assured that your performance | | | | In fact, from 1999 through 2005, the three best |
| will not be much worse than the major averages. | | | | performing funds each outperformed the |
| Of course the key disadvantage to index | | | | S&P 500 by at least 30 percent every year. |
| investing is that you will not outperform the | | | | Of course, the worst performing funds |
| averages either. | | | | performed at least 10 percent worse than the |
| A quick look at the year end rankings of mutual | | | | S&P 500 every year as well. |
| funds and ETFs almost always has some narrow | | | | This highlights the great profit potential from |
| sector fund like energy or tech stocks leading the | | | | sector trading, but also the risks associated with |
| gains for the year. | | | | trading without a plan or a system to get you |
| Let's take a quick look at the relative success of | | | | into the strong sectors at the right time while |
| sector funds over the last few years. We will use | | | | getting you out before the bottom falls out. |
| the Fidelity funds family, not that there is | | | | Previously we described a simple system using |
| necessarily an advantage to using Fidelity, but | | | | Fidelity Select funds for a sector trading system |
| they have a large offering of funds (over 100 | | | | that had historically returned about 16% a year |
| equity funds alone, including domestic sectors and | | | | trading just once a month. This showed that even |
| international funds, including country funds) and | | | | a simple sector trading system that anyone can |
| they have a longer history than most of the | | | | trade can yield market beating results. |
| exchange traded funds that can be used today | | | | But a simple one fund system can have above |
| for sector trading. | | | | market risk. This simple system had almost a |
| In a previous article we saw that even for the | | | | 50% drawdown in the 200-2002 bear market. But |
| bear market year 2002, which saw the major | | | | the good news is that there are simple changes |
| indices down by better than 20%, there were | | | | that can be made to build a trading system that |
| Fidelity funds that had a positive return for the | | | | keeps above market returns while significantly |
| year. And of course for the stronger market | | | | reducing the risk of sector trading... |
| years like 2003 and 2004, there were funds that | | | | |