Between late June ’11 and the first week of October ’11 the S&P 500 lost over 18% of it’s worth. Most 401k plans lost close to 20% in that short amount of time. Meanwhile, people like me made a fortune. During the last week of June, most of us professionals bought a stock called TVIX. Its an extremely complicated investment tool that I wouldn’t recommend to any novice trader. What it does, basically, is 2x whatever the VIX does. If the VIX goes up $1.00, in theory TVIX would make you $2.00. Consequently, if the VIX loses $1.00, you should lose $2.00 in theory.
Back in late June, you could have bought TVIX for $17.50. I have to admit, I did so. As of the first week of October, TVIX traded at $109.00 per share. I’ll let you figure out the math. So, while the common individual was losing upwards of 20-25% in that time span, the professionals were able to make 622.86% in that same amount of time. That seems unfair, right? Why wasn’t anyone telling you to buy TVIX? I’d personally be throttling my financial advisor or broker around the neck if they hadn’t suggested it.
Well, like I said its a complicated investment. By law, those advisors and brokers are not allowed to even mention those types of investment tools to an average investor. What about your 401k? Surely there was an investment tool of relative value that you could have acquired to obtain even a meager positive return. That assumption would be incorrect. 401k’s only allow you to move between bonds, mutual funds, and money market accounts. That means a 401k is actually designed to lose your money whenever the market swings into a downward cycle. I ran multiple scans through different sources, and found only one or two mutual funds that were just barely in the green during that late June ’11 through early October ’11 time frame.
TVIX wasn’t the only vehicle that could have made you a fortune. There were plenty of others playing the bear market that could have made you plenty of money. Unfortunately, your 401k’s don’t allow you to use them. So while you’re struggling just to stay even in your portfolio, and most likely fighting a losing battle, we’re able to make a fortune because we don’t have those same restrictions.