Baby Boomer – Pendulum Investment Strategy

Here’s why we poor Baby Boomers get caught in between the two elephants in the room, the Governments and the Financial Industry. Smart Money Pendulum

I call it the pendulum because the investment cycle swings from;

  • Over regulation and government control of the economy and financial markets with poor returns
  • Through to good regulations and minimal interference in the markets
  • Ending in a Boom/Bust with poor or no regulations of the markets and even government manipulation of the markets
  • Then back again

The diagram (reproduced as a large image at the bottom of this post) is my attempt to show where the smart money is as we swing between Boom and Bust, regulation and de-regulation. Note the big black arrow going from right to left. This is the direction  investments should take. This is because the momentum of money is on your side as governments relax regulations to get the economy working again. Badly behaved financial institutions are on their best behaviour and are keen to do the right thing. In general we can begin trusting government and business again.

As the pendulum swings to the left we can actually end up with some good regulations, markets are freed up and governments retreat from controlling the economy.

This is the time to test the market to see how bullish it is by averaging into stocks with small amounts of money and no stops (there can be whipsaws). If profits accumulate you can start implementing a stop loss strategy as you become an investment pig. By that I mean you can start putting some serious money in the markets.

Now is the time to ride the Bull up as far as it will take you but with your stops in place. The first loss is the best loss. Avoiding large losses is rule #1. Take what the market gives you and say thank you. As your stops get hit you slowly withdraw from the market with the profits you have locked in.

Now go fishing until the pendulum swings back the other way ready for another go.

If you try to invest in the other direction you are liable to get whipsawed and lose a lot of money. Governments take over and make decisions not based on the markets but on being seen to be doing something, and with an eye on the next election. Plus they will bail out their mates for the public good. The big private money will be out of the markets as governments take over the running of the economy and businesses, using tax-payer money.

It’s a game really of swing the pendulum. You need to be on the right side of the swing. Follow the big black arrow.

When governments are in control we can expect market returns to be poor. Eventually governments begin to realise this and feel the need to relax regulations to get the economy moving. Private money starts moving back into the market, taking over the economy and businesses once again and the investment cycle begins anew.

I’ve tried to show what you might want to consider doing at each point in the pendulum. It’s a little crude but I think it shows how things work and how to avoid losing your nest egg by investing in the wrong direction and at the wrong time.

If anyone has some suggestions to improve the pendulum please comment. This is version 1.0 and can definitely be improved.

Smart Money Pendulum

Follow the Arrow to the Right to Invest Safely

One Response to “Baby Boomer – Pendulum Investment Strategy”

  1. […] key is to know how this all works and make sure you are on the right side of the cycle. The Pendulum Investment Strategy may keep you on the right side of the […]

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