WHAT MAKES THE market so undeniably fascinating is that at any moment, the bull’s case is just as compelling as the bear’s. So let’s say we’ve hit the bottom, or at least a bottom worthy of trading from the long side. After all, the averages have rallied strongly since September, and given that perky performance and the examples of history, there are plenty of reasons to believe the market’s next move could be higher.
Which way you trade usually isn’t as important as what you trade. And there are choices galore.
You could buy stock in IBM (IBM), General Electric (GE) or any of the other big stocks that make up the Standard & Poor’s 500, or a mutual fund that will do it for you. You could buy options on the index itself, or an exchange-traded fund holding stocks that make up the index. You can even buy options on exchange-traded funds that hold stocks that make up the index. Can you say overkill?
Having a good investment idea is one thing, putting it into practice is another. Think Sun Tzu: Every battle is won or lost before it is even fought. No matter how good your analysis is, choosing the appropriate instrument relative to your capitalization is a big factor in determining the outcome of the investment battle. So here’s a look at what might be the right instruments for relatively small investors with varying portfolio sizes. (more…)