The Joy of Toolbox Investing

Sure, it's fun to trade individual stock tips and track their daily fluctuations. But it's truly Foolish to look beyond individual stock performance, and focus on constructing market-beating toolboxes. Metaphorically, portfolios are like a box of unique gadgets: Every investment is a useful tool designed to help us get our desired returns. Tricking out our tool belts with stocks hanging on our tool belts limits our ability to tackle uncooperative markets. It's tough enough to beat the market; why not fill your box with the kind of gear that can keep your profits humming?

Investors can do so by showing some love to both exchange-traded funds and options.

ETFs trade like stocks, yet are able to provide access to either broad or narrow exposures to specific industries, sectors, or investment strategies. See inflation around the corner? The SPDR Gold Trust (NYSE: GLD  ) is a popular choice for you to consider, then. Think gold prices are too high? Consider a total commodity ETF like iShares GSCI Commodity Indexed Trust  (NYSE: GSG  ) ? Have a very specific diversification or hedging fix? Don't worry, there's an ETF for that.

While options can appear to be scary at first, they're probably one of the most neglected and underused tools for many dedicated, yet cautious investors. Indeed, options should be approached thoughtfully, but a blanket rejection of their usefulness can be a huge, missed opportunity. Watch the video here:

While we don't advocate trading or initiating short-term speculative plays, Jeff Fischer and his team at Motley Fool Pro have an impressive track record of responsibly using stocks, ETFs, and options to beat the market. If you want to learn more about Pro, simply enter your email address in the box below.

Andy Louis-Charles does not own shares of any securities mentioned. The Fool has a disclosure policy.

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  • Report this Comment On June 16, 2010, at 6:18 PM, DDHv wrote:

    Might be an idea to have a toolbox blog. I've been adding to the search patterns this tool: The active list of possible buys is put on a spreadsheet, and sorted by their price relationship to the low and current prices. Limit buy prices are then adjusted to produce a list spaced a few percent apart ranging from the one closest by percentage of the current>low gap to the current price to the one closest to the low. Total amount (bid * #shares) is then adjusted so that the ones closest by % to the low get the biggest amount. If there is a general drop, as just happened, stocks buy starting at the top, but with the largest amount being for the best bargains. The amount actually bought depends on how big the drop is. Each weekend, the list is checked for changes, and raised just a little bit.

    First you need to pick the stocks with care, but this makes a nice additional tool.

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