Replies to post #1188 on Advanced Automatic Investor

[aptus]

Hello Jack,

The funds TRY to follow the Russell 2000 index, but they don't actually hold the underlying index's components. They use proxies. Here's the description for TWM...

"The investment seeks daily investment results, before fees and expenses, which correspond to twice the inverse of the daily performance of the Russell 2000 index. The fund normally invests 80% of assets in financial instruments with economic characteristics that should be inverse to those of the index. It may employ leveraged investment techniques in seeking its investment objective. The fund is nondiversified."

Note that they try to achieve 2X the inverse (so that's inherently riskier right off the bat), they may use leverage (again, riskier) and the fund is nondiversified (much riskier).

UWM uses similar tactics.

[Toofuzzy]

Hi Jimjih

>>>>why would these be riskier?
dont they follow the russell 2000<<<

They are riskier in the same way mortgage derivatives are riskier than if a bank originated and held its own mortgages.

They move twice as fast ..... burning through your cash on the downside.

In the short term they follow the index but not over longer periods of time due to a number of reasons I can not explain but including higher fees , the fact that if something goes down 50% it has to go up 100% to get back to even.

Don't even think of using one fund to AIM and one as the CASH! BIG BIG mistake!

I suggest a more diversified portfolio of large value, small value, forien, REIT, Bond using ETFs

Toofuzzy