Protect Your Wealth from the Ravages of Inflation_8 doc

I Index A Acceptable real rate of return, 51 Assets definition, 2 increase in, 5 Australian dollar, 53, 54, 110 capital allocation, 55 currency holdings after purchase, 56 FX account

Protect Your Wealth from the Ravages of Inflation 119

New Thinking in Technical Analysis: Trading Models from the Masters, by Rick

Bensignor (editor) (Bloomberg Press, 2000)

Practical Speculation, by Victor Niederhoffer and Laurel Kenner (Wiley, 2005) Psychology of Trading: Tools and Techniques for Minding the Markets, The, by

Brett N Steenbarger (Wiley, 2002)

Reminiscences of a Stock Operator, by Edwin Lefèvre and Roger Lowenstein

(Wiley, 2006)

Rules of the Trade: Indispensable Insights for Online Profits, by David S Nassar

(McGraw-Hill, 2001)

Running Money: Hedge Fund Honchos, Monster Markets and My Hunt for the Big Score, by Andy Kessler (HarperCollins, 2004)

Schwager on Futures: Fundamental Analysis, by Steven C Turner and Jack D

Schwager (Wiley, 1996)

Schwager on Futures: Technical Analysis, by Jack D Schwager (Wiley, 1997)

Smarter Trading: Improving Performance in Changing Markets, by Perry

Kauf-man (McGraw-Hill, 1995)

Stock Market Wizards: Interviews with America’s Top Stock Traders, by Jack D

Schwager (Marketplace Books, 2008)

Strategic Electronic Day Trader, The, by Robert Deel (Wiley, 2000)

Trade Your Way to Financial Freedom, by Van K Tharp (McGraw-Hill, 2006) Trader Vic: Methods of a Wall Street Master, by Victor Sperandeo (Wiley, 1993) Trading in the Zone: Master the Market with Confidence, Discipline and a

Win-ning Attitude, by Mark Douglas (Prentice Hall, 2001)

Trading Systems That Work: Building and Evaluating Effective Trading Systems, by

Thomas Stridsman (McGraw-Hill, 2000)

Trend Following: Learn to Make Millions in Up or Down Markets, by Michael W

Covel (FT Press, 2009)

Way of the Turtle: The Secret Methods that Turned Ordinary People into

Legen-dary Traders, The, by Curtis Faith (McGraw-Hill, 2007)

What Works in Online Trading, by Mark Etzkorn (Wiley, 2001)

When Genius Failed: The Rise and Fall of Long-Term Capital Management, by

Roger Lowenstein (Random House Trade Paperbacks, 2001)

Recommended Reading

120

Money and Investing

Contrarian Investing: Buy and Sell When Others Won't and Make Money Doing It,

by Anthony Gallea and William Patalon III (Prentice Hall, 1999)

Fiat Paper Money, by Ralph T Foster (Ralph T Foster, 2008)

Guerrilla Investing: Winning Strategies for Beating the Wall Street Professionals, by

Peter Siris (Taylor Trade Publishing, 2000)

Investing for Dummies, Fifth Edition, by Eric Tyson (Wiley, 2008)

Investment Gurus: A Road Map to Wealth from the World’s Best Money Manag-ers, by Peter J Tanous (Prentice Hall, 1999)

Money Game, The, by Adam Smith (Vintage, 1976)

Money Masters, The, by John Train (HarperBusiness, 1994)

New Rules of Money: 88 Simple Strategies for Financial Success Today, The, by

Ric Edelman (Collins, 1999)

Pied Pipers of Wall Street: How Analysts Sell You Down the River, The, by

Ben-jamin Mark Cole (Bloomberg Press, 2001)

Safe Strategies for Financial Freedom, by Van K Tharp, D R Barton, Jr., and

Steve Sjuggerud (McGraw-Hill, 2004)

Miscellaneous

Art of War, The, by Sun Tzu (translated by Samuel Griffith) (Oxford

Univer-sity Press, 1963)

Black Swan: The Impact of the Highly Improbable, The, by Nassim Nicholas

Taleb (Random House, 2007)

Blink: The Power of Thinking Without Thinking, by Malcolm Gladwell (Back Bay

Books, 2007)

Labyrinths of Reason: Paradox, Puzzles and the Frailty of Knowledge, by William

Poundstone (Anchor, 1989)

Probability Without Tears: A Primer for Non-Mathematicians, by Derek

Rown-tree (Prentice Hall, 1984)

Way of The Warrior-Trader: The Financial Risk-Taker’s Guide to Samurai Courage, Confidence and Discipline, The, by Richard D McCall (McGraw-Hill, 1997) Why Café, The, by John Strelecky (Aspen Light Publishing, 2011)

A P P E N D I X

B

Useful

Resources

While this list of resources may look a bit sparse, I’ve cut it down to only the really useful resources I use all the time, rather than including a huge list

of everything to do with money and investing online

Trading and Investments

pmkingtrading.com

finance.yahoo.com

Precious Metals

www.goldmoney.com

globalgold.ch

www.perthmint.com.au

bullionvault.com

Useful Resources

122

Brokers

interactivebrokers.com

Economics and Statistics

www.shadowstats.com

www.tradingeconomics.com

www.economist.com

Currency Interest Rates and Consumer Price Indexes

AUD: www.abs.gov.au

CAD: www.statcan.gc.ca

CHF: www.bfs.admin.ch

EUR: epp.eurostat.ec.europa.eu

GBP: www.statistics.gov.uk

HKD: www.censtatd.gov.hk

JPY: www.e-stat.go.jp

NZD: www.rbnz.govt.nz

SEK: www.scb.se

USD: www.bls.gov

Products

qmatix.com

tradingblox.com

office.microsoft.com

I

Index

A

Acceptable real rate of return, 51

Assets

definition, 2

increase in, 5

Australian dollar, 53, 54, 110

capital allocation, 55

currency holdings after

purchase, 56

FX account

after rebalancing, 61

ideal and actual allocations, 60

inflation rate, 53

interest rate, 53

positive real interest rate

environment, 54

real rate of return, 53

B

Balance sheet

definition, 2

Miss Borderline, 3

Mr and Mrs Fit, 4

Mr and Mrs Unfit, 2

Bank, definition of, 48

Base currency, 57, 58

Basket of commodities, 19

Benchmark rate, 54

British pound, 53, 110 capital allocation, 55 currency holdings after purchase, 56

FX account after rebalancing, 61 ideal and actual allocations

of, 60 inflation rate, 53 interest rate, 53 positive real interest rate environment, 54 real rate of return, 53 Brokerage account, 45 Bullion Vault Company, 44 Buy-and-hold strategy, 110–112

C

CAGR See Compound annual

growth rate Canadian dollar, 53, 110 capital allocation, 55 currency holdings after purchase, 56

FX account after rebalancing, 61 ideal and actual allocations

of, 60 inflation rate, 53

Index

124

interest rate, 53

positive real interest rate

environment, 54

real rate of return, 53

Capital

allocation, for currencies, 55

gains, 46

gains tax, 45

implementation of, 14

objectives and types, 14

Cash flow statement, 6

expenses, reduction of, 9

income, increase in, 8

Miss Borderline, 7

Mr and Mrs Fit, 7

Mr and Mrs Unfit, 6

Cash rebalancing method, 57

Certificate of deposit (CD), 52

Compound annual growth rate

(CAGR), 16, 17, 71–73

Consumer Price Index (CPI), 24

Consumer Price Index for All Urban

Consumers (CPI-U), 15, 16

Counterfeiting, 22

CPI-U See Consumer Price Index for

All Urban Consumers

Currency

allocation of 100,000 US dollars, 56

devaluation, 23, 49

real rate of return on, 53

rebalancing, 67

trading, peculiarities of, 58

types of, 53

units, supply of, 22

weighting, 55

D

DD See Drawdown

Defunct currency, 113

Devaluation of currency See

Currency, devaluation

Discretionary expenses, 9 Dollar cost averaging, 32, 111 Drawdown (DD), 30 Dreyfus (WisdomTree), 59

E

EFA annual rebalancing of, 34 ETF allocation, 33 Emergency fund, 14, 39 creation, 108 establishment, Mr & Mrs Fit, 46 objective, 109

purchasing power protection, 39 alternative solution, 47 increasing emergency fund, 40 precious metals, investment

on, 41

ETFs See Exchange-traded funds

Euro, 53, 110 capital allocation, 55 currency holdings after purchase, 56

FX account after rebalancing, 61 ideal and actual allocations

of, 60 inflation rate, 53 interest rate, 53 positive real interest rate environment, 54 real rate of return, 53 Everbank, 57

Exchange-traded funds (ETFs), 15,

30, 59 allocation, 33 inverse fund, 88, 91, 92 liquid, 90, 91

noncorrelated, 90 ranked by volume, 88–90 rebalancing, 67

ultra-short fund, 92

Index 125

Expenses

discretionary, 9

mandatory, 9

reduction of, 7, 9

F

FARCE strategy, 111, 112

Fiat (by decree)

counter-feiting, 22

currency, 22

paper currency, 43, 45, 47

Financial fitness, 1, 13

achievement, 107

balance sheet, 2

cash flow statement, 6

meaning of, 1

Financial meltdown, 114

Financial nightmare, 10

Fiscal policy, 21, 22

Foreign currency, 52

Foreign exchange (FX) trade,

57–59

after rebalancing, 61

ideal and actual allocations, 60

G

Global Gold Company, 44

Gold (GLD)

Australian dollars, price in, 43

control, 110

dollar allocation, 63, 64

ETF recommendation, 62

GoldMoney, 44, 109, 113

investment on, 41

and oil ratio, 37

prices in dollars, 36

savings account funding, 109

standard, 22

vs US dollar, 47

GoldMoney holdings, 45

H

"Hedonic quality adjustment”, 25

HELOC See Home equity line of

credit

Holding See GoldMoney holdings

Home equity line of credit (HELOC),

48, 108 Hong Kong dollar, 53, 110 capital allocation, 55 currency holdings after purchase, 57

FX account after rebalancing, 61 ideal and actual allocations, 60 inflation rate, 53

interest rate, 53 positive real interest rate environment, 54 real rate of return, 53

I

IB See Interactive brokers

Income characteristics, 8 increase, 7, 8 Individual retirement account (IRA),

69 Inertia, 81 Inflation Consumer Price Index, 24 definition, 15

financial fitness, 13 inevitability of, 22 MAR ratio, 35 negative real interest rates, 15 purchasing power, 15 rates, on currencies, 53 responsibility, 28 market performance, 30

Mr and Mrs Fit, seeking financial advice, 29 single-currency problem, 26

Index

126

Inflation-proof emergency fund, 42

Interactive brokers (IB), 57

Interest rates, on currencies, 53

International currency, 109

Inverse bond funds, 61, 64

Inverse Treasury Bonds (TBT), 62,

64, 110

Investment account, 14

Investment account management,

69, 111

construction of investment, 70

FARCE avoidance, 77

IRA, 69

Mr and Mrs Fit

portfolio managers See

Portfolio management

visit a casino, 75–77

risk adjustment, 70

risk and return measurement, 70

CAGR calculation, 71, 72

drawdown (DD)

percentage, 73

MAR ratio, 73

performance achievement, 74

periodic value, 73

return value, 71

uncontrolled risk, 74

risk minimization, 75

ROI, 75

trading vs investment, 78

annual rebalancing, 83, 84

buy and hold investor, 79

entry signal, 81, 82

exit strategy, 78, 82, 83

instrument filter, 80

market selection, 79

position-sizing method, 82

rebalancing portfolio, 78

setup conditions, 81

six components, 78

trend capturing

2% annual fee, 84, 85

average true range (ATR), 94,

96, 97

capital efficiency, 99

exit strategy, 101–103 financial spending, 86

instrument filter (see

Exchange-traded funds) market selection, 88 NLV, 97, 98

no annual fee, 85–87 risk per trade, 100, 101 risk per share calculation, 98 setup condition, 93

true range, 94 volatility, 98 XLQ, 97 Investment portfolio ETFs, 113 iShares Trust Barclays 20+ Year Treasury Bond Fund, 62

J

Japanese yen, 53, 110 capital allocation, 55 currency holdings after purchase, 57

FX account after rebalancing, 61 ideal and actual allocations, 60 inflation rate, 53

interest rate, 53 positive real interest rate environment, 54 real rate of return, 53

L

Liabilities decrease in, 5 definition, 2 Liquidity, migration of, 113 Low/negative real interest rate environment, 61

M

Managed Account Reports (MARs) ratio, 31, 35

Index 127

Mandatory expenses, 9

Market performance, 30

Momentum, 81

Monetary policy, 21

Money supply, factors affecting, 22

N

Negative net worth, 2

Negative real interest rate

environment, 52, 54, 61

reduction in, 15

Negative real rate of return, 26

Net capital gain, 45

Net cash flow calculation, 6

Net liquidation value (NLV), 97, 98

Net worth, 2

New Zealand dollar, 53, 110

capital allocation, 55

currency holdings after

purchase, 57

FX account

after rebalancing, 61

ideal and actual

allocations, 60

inflation rate, 53

interest rate, 53

positive real interest rate

environment, 55

real rate of return, 53

P

Palladium (PALL)

control, 110

dollar allocation, 63, 64

ETF recommendation, 62

investment on, 41

savings account funding, 109

Passive income, 8

Periodic rebalancing, 35

Perth Mint, 44

Platinum (PPLT) control, 110 dollar allocation, 64 ETF recommendation, 62 investment on, 41 savings account funding, 109 Portfolio management

brokerage account, 104, 105 ETF and poor performance, 104 skills acquisition, 104

statistics, 105 Positive net worth, 2 Positive real interest rate environment, 52, 54 Precious metal(s) ETFs, 109 holdings of, 45 investment companies, 44 investment on, 41 emergency fund establishment, of Mr & Mrs Fit, 46

Gold vs US dollar, 47

GoldMoney, working of, 45 inflation-proof emergency fund, 42

practical problems, 43 owing, 112

Price inflation, 15, 21, 39 Procrastination, 107 brokers going out of business, 114 defunct currency, 113

emergency fund creation, 108 financial fitness achievement, 107 financial meltdown, 114

GoldMoney, 113 investment account management,

111 investment portfolio ETFs, existence of, 113 owing precious metals, 112 precious metals ETFs, existence

of, 113 savings account, funding of, 109

Index

128

Purchasing power

emergency fund

maintenance, 40

protection, 39

reduction in, 15

Q

Quote currency, 58

R

Rake, 75

Random walk strategy, 117

Real rate of return

on currencies, 53

definition, 52

Rebalancing model curriencies vs

ETFs, 67

Recommended reading, 117, 121

money and investment, 120

probability, 120

trading, 117–119

Recurring income, 9

Repeatable income, 9

Return on investment (ROI), 75

in TIP, 17

in TLT, 18

Risk-adjusted return, 66

Rydex (CurrencyShares), 59

S

S&P 500

index, 112

investment return, 30, 31

Savings account

funding of, 109

objective, 14

Savings and working capital, 51

acceptable real rate of return, 51

historical results, 65

low/negative real interest rate

environment, 61

positive real interest rate environment, 54 currency trading, peculiarities

of, 58 Scalable income, 8 Silver (SLV) control, 110 dollar allocation, 63, 64 ETF recommendation, 62 investment on, 41 savings account funding, 109 Single-currency problem, 26 Single-currency risk, 26 Smart money, 42 Sound investment, 31 SPY, 33

annual rebalancing of, 34 S&P 500 dollar cost averaging, 32 S&P 500 investment return, 31 Swedish krona, 53, 110

capital allocation, 55 currency holdings after purchase, 57

FX account after rebalancing, 61 ideal and actual allocations, 60 inflation rate, 53

interest rate, 53 positive real interest rate environment, 55 real rate of return, 53 Swiss franc, 53, 110 capital allocation, 55 currency holdings after purchase, 57

FX account after rebalancing, 61 ideal and actual allocations, 60 inflation rate, 53

interest rate, 53 positive real interest rate environment, 55 real rate of return, 53

Index 129

T

TBT, 62, 63

Time-for-money income, 8

TIP security See Treasury Inflation

Protected (TIP) security

TLT, 33, 62, 63

annual rebalancing of, 34

return on investment in, 18

Trading Blox, 66

Treasury Inflation Protected (TIP)

security

ETF, 15, 16, 110

return on investment in, 17

savings and working capital, 62

US dollar allocation, 64

U

United States (US) dollar, 53, 64, 110

capital allocation, 55

currency holdings after

purchase, 57

FX account after rebalancing, 61 ideal and actual allocations, 60

vs Gold, 47

Index, 27 inflation rate, 53 interest rate, 53 positive real interest rate environment, 55 real rate of return, 53 Useful online resources consumer price index, 122 economics and statistics, 122 interactive brokers, 122 interest rate, currency, 122 precious metals, 121 products, 122 trading and investment, 121

Z

Zero percent tax bracket, 17