Traders Edge

40/40/20 Wealth Building Strategy

A relatively safe strategy for building wealth is breaking your investing into sections: 40% Cash Flow Strategy, 40% long term growth focus, and less than 20% invested in higher risk, higher reward techniques.

40% Cash Flow

I personally prefer credit spreads as a major source for my short term monthly cash flow. This is an Advanced Option, this section is reserved for the cash flow portion of a portfolio. These are an average of approximately 30 day long trading strategies. It is important to understand your personality type and time commitment to your 30 day trades. If you have little time to invest into your trading, then you will want to stick with a trading style that doesn't require a large time commitment. These are question we ask and help you determine what strategies are best suited for each person at our 2 day seminar strategy that doesn't require you be correct on the direction of the stock or indice to capture a ncie consistent profit. To learn more about this strategy, attend one of our 2 day seminars (Cash Flow Workshop). We spend the entire time showing folks how to make monthly cash flow.

40% Growth

This section of our investing is reserved for longer term growth opportunities to further balance out a portfolio. I have chosen two stocks from different sectors for better diversification. Whenever investing in a time frame longer than 90 days, it is wise to understand the strength of the company and how the marketplace values it. I am going to use fundamental analysis that we teach in the Fundamental Seminar, and the 4 steps to investing into a company which are:

1. Research which sectors are showing strength and which are weak.

2. Use Fundamental Analysis to start a list to analyze.

3. Use technical analysis to spot good entry criteria.

4. Apply an Option Strategy to further reduce the risk in the trade.

I have done some analysis and have found 2 companies that have increased earnings and dividends for the past 5 years; they also have a brokerage recommendation. There are some additional fundamental criteria that have been met and are taught at the 3 day Fundamental Seminar. I put more emphasis on fundamental ratios for the selection of the stocks to find some opportunity in a shorter time frame. These picks typically take about 2-4 months to work out, but using additional technical stop losses will further reduce risk in the trade.

20% Aggressive Strategy

It is a good strategy to reserve part of all portfolios for an aggressive or speculation trade. The trade I am going to talk about for educational purposes is all about Coffee. Normally I don't listen to the weather channel to give me investment possibilities, however under certain circumstances it is a good to be aware of what is going on globally as well as domestically. Actually, I have come up with some of my best trades from the most unlikely sources. Listening to the weather station recently, there was a lot of discussion about how much rain South America has been getting lately, it has been so much rain that it damaged a large portion of the coffee crops throughout the continent. The futures market has observed this and coffee futures are up 10% since May 1st.

What does all of this mean? Supply and demand will tell us that if there is less supply then demand will go up and the price will raise. As a future trader if you are trading coffee you live and die by the weather channel, however I focus more towards the equity market so I see an opportunity where those companies that purchase coffee will be paying more for their goods and if they do not raise the price of their services they will definitely take a hit around earnings time. With that information I am trying to think of a company that makes it's sole profit by selling coffee and there is only one company in the race. Yes, that's right, one of my favorite companies to own may suffer from a raise of coffee prices.

There are a few ways to trade this news. First, you can look to short SBUX and generate profit as the stock falls, or if you have been to our Advanced Seminar there are a few option strategies you can utilize that will reduce the risk in the trade and raise the probability.

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Disclaimer: Investing has risk. Prior to investing in cash flow, growth or aggressive techniques, you should consult an investment adviser. All information on this site, is purely for education, and there is no specific investment advise.