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Want to Invest Better? Break the Rules

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It's not hard to invest successfully for retirement. But does it have to be boring?

The way some financial advisors talk -- myself included -- you'd sure think so. Countless times, I've told investors that the best way to build wealth is to use a disciplined approach toward creating a long-term investing strategy that will get you to your financial goals. By creating an asset allocation model and then choosing appropriate investments to fill in the blanks, you'll see your monthly savings add up slowly but surely over the years. But if you start thinking short term and making lots of trades, we all warn, your plan could get derailed.

I can hear you yawning already. Isn't there anything you can do to liven up your investing without ruining your prospects for retirement?

Take a walk on the wild side
Boredom is the last thing on the agenda for Robert Brokamp, the lead advisor of the Fool's Rule Your Retirement newsletter. In the most recent issue, which subscribers will have access to beginning today at 4 p.m. ET, Brokamp makes a confession: He's not always faithful to those tried and true tenets of financial planning.

Now don't get the wrong idea. Brokamp does make sure to keep the bulk of his money invested using a buy-and-hold strategy, picking investments that include low-cost funds and individual stocks. He adds to his portfolio regularly and makes sure to rebalance from time to time to make sure his risk level doesn't get higher than he's comfortable with.

But with some of his money, Brokamp joins the Dark Side faster than Luke Skywalker can swing a light saber. Market timing, using leveraged ETFs, you name it; all those things he and countless others have told you never to do are fair game. And best of all, he's not at all embarrassed by it. After all, it helps keep investing fun -- and it can also teach you a lot of things you might never learn otherwise.

Go ahead -- try this at home!
Here are some things you can do with small amounts of money without getting carried away. Sure, each of them carries some potential profits, but more importantly, each one has the side benefit of exposing you to an area of the financial markets you may never have looked at before.

  • Play with ETFs. Typically, you'll hear folks recommend sticking with broad-market ETFs for the bulk of your portfolio. But more narrow ETFs can give you countless ways to drill down on particular investments. For instance, if you believe energy shares will rebound now that many investors have started to forget about the Gulf oil spill, then SPDR Select Energy (NYSE: XLE  ) gives you an easy way to put your money where your mouth is. Think the European crisis will rear its ugly head again in the near future? Try the leveraged UltraShort Euro ProShares (NYSE: EUO  ) ETF.
  • Discover options. Dividend-paying stocks are all the buzz lately, as investors prefer the bird in hand that quarterly payouts represent over the two in the bush of capital gains. But with a simple covered call strategy, you can turn zero-yield stocks Baidu (Nasdaq: BIDU  ) and Research In Motion (Nasdaq: RIMM  ) into investments that will produce 2% or more in income every month -- while still retaining a decent part of their potential upside, whether you see it coming from Baidu's dominant position in China or from a bounce-back from the beatdown that the BlackBerry-maker has taken from its competitors lately.
  • Think small. If you've invested in blue-chip stocks your whole life, you have no idea what you're missing. Small-cap growth stocks are certainly riskier propositions, but they have amazing potential. Joe's Jeans (Nasdaq: JOEZ  ) may turn out to be tomorrow's reprise of the rise and fall of Crocs, but such criticism is something even the most successful small-caps typically faced early in their existence.
  • Short a stock. Lots of investors go their whole lives without making a negative bet on the market. But being able to bet both ways can help you make money in any market. For instance, NVIDIA (Nasdaq: NVDA  ) has seen big increases in inventories in the most recent quarter, while WMS Industries (NYSE: WMS  ) is experiencing rising receivables without corresponding boosts in net income. Those can both be red flags for a stock -- and opportunities to make money by selling them short.

Remember, though: Don't invest any money in these higher-risk strategies that you can't afford to lose. Sometimes, the pain of a big loss will teach you even more than a successful investment does.

So if you're afraid that your investing is getting a little boring, take a little money and go ahead and break the rules. Until you do it, you have no idea just how invigorating it can be.

Want to learn more about Brokamp's big bets and how they worked out? A free 30-day trial to Rule Your Retirement gets you no-holds-barred access to the entire site, which includes plenty of tips and resources. Try it out today.

Fool contributor Dan Caplinger thinks Luke Skywalker was a big whiner. Dan doesn't own shares of the companies mentioned above, and we're pretty sure Luke doesn't either. Baidu is a Motley Fool Rule Breakers recommendation. NVIDIA is a Motley Fool Stock Advisor pick. Try any of our Foolish newsletter services free for 30 days. The Fool's disclosure policy really, really wants one of those cool Darth Maul double-edged saber lances.


Read/Post Comments (2) | Recommend This Article (15)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 03, 2010, at 12:16 AM, Clint35 wrote:

    Skywalker may have been a whiner but he was a great jedi so he gets a pass on the whiny stuff. By the way good article.

  • Report this Comment On September 03, 2010, at 11:01 AM, ETFsRule wrote:

    I love the idea of investing some of your money in small, high-risk stocks... however, I just can't agree with a recommendation of a leveraged, UltraShort ETF. That seems very irresponsible to me.

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Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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10/20/2014 4:00 PM
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