Strategy - Part II
What works in Strong Up Stock Market & vice-verse!!!
In this section we will try to understand, which investments tends to perform better in Up/Down stock market. We can device a technique to use bull & bear market to our advantage and choose right funds as a safe investment based on current stock market direction.
Now before we explain our strategy, we need to understand some crucial financial basics -
(No need to go in detail as long as you understand on the surface)
Bond prices move inversely to interest rates
Relationship between Bonds and Stock
So what did we learn so far!!!
Bonds are considered as debt instruments, hence they are categorized as debt funds
During economic downturn, stock prices peak due to overenthusiastic expectations for stock profits and investors prefer strong bond credits
In short, during market volatility or uncertain period, Bonds are more attractive and during stable or growth markets, Stocks are more attractive
I am Confused!!!
Don't worry, if you are confused then go through above information one more time. Remember, you only need to understand at high level without going into too much details. But the understanding of above principles is crucial without which you will not be able to understand our advance strategy.
Lets see how we can exploit this relationship between Bonds & Stock Market to our advantage!!!
Now before we explain our strategy, we need to understand some crucial financial basics -
(No need to go in detail as long as you understand on the surface)
Bond prices move inversely to interest rates
- Understanding Bond Prices and Interest Rates
- Why do interest rates tend to have an inverse relationship with bond prices?
Relationship between Bonds and Stock
- Stocks Vs. Bond Interest Rates
- Why Don't Bonds & Stocks Move Together?
- The Relationship Between Stock Prices and Bond Prices
- Courting Stocks and Bonds
So what did we learn so far!!!
- Bonds are inversely related to Interest Rates -
Bonds are considered as debt instruments, hence they are categorized as debt funds
- Bonds and Stocks have very interesting relationship -
During economic downturn, stock prices peak due to overenthusiastic expectations for stock profits and investors prefer strong bond credits
In short, during market volatility or uncertain period, Bonds are more attractive and during stable or growth markets, Stocks are more attractive
I am Confused!!!
Don't worry, if you are confused then go through above information one more time. Remember, you only need to understand at high level without going into too much details. But the understanding of above principles is crucial without which you will not be able to understand our advance strategy.
Lets see how we can exploit this relationship between Bonds & Stock Market to our advantage!!!
What to trade using our Strategy?
Today, we have various types of Mutual Funds from different categories.
Where to get list of Mutual Funds?
Many sources are available today over the internet, the best source is your brokerage firm. Few free resources are provided below:
How to choose right list of Mutual Funds for right kind of market!!!
Bull Market - Market in Uptrend (Strong Growth)
Bear Market - Market in Downtrend (Correction or Crash)
Now that we know some basics, it's time to understand our Investment Strategy...
Where to get list of Mutual Funds?
Many sources are available today over the internet, the best source is your brokerage firm. Few free resources are provided below:
- MoneyControl - Find Your Fund
- MutualFundsIndia - Top Funds
- Moneysights - Mutual Funds
- yourMoneySite - Mutual Funds
How to choose right list of Mutual Funds for right kind of market!!!
Bull Market - Market in Uptrend (Strong Growth)
- We choose from list of Equity Mutual Funds (we exclude debt funds, in other words we exclude bond funds)
Bear Market - Market in Downtrend (Correction or Crash)
- We choose from list of Debt Mutual Funds (we exclude equity funds) or Money Market Funds. A money market fund is the type of mutual fund that invests solely in the money market account (kind of equivalent to cash account) and considered very low risk and low gains.
Now that we know some basics, it's time to understand our Investment Strategy...