Where Do You Put Your Investment Funds in 2015?

As I am about to explain, I think that will be an easy decision.

Historical cycles suggest good things for the US stock market in 2015. We have two major cycles converging, both of which have great track records.

Firstly, the long term decennial cycle. This was first written about by Edgar Lawrence in 1959. He noticed that each 10 year decade in the markets had a tendency to follow the same pattern. Ie the 1st year of the decade is often similar, as is the 2nd etc…

By far the year with the best record is the 5th year. Think 1995, 2005, 2015……

We have records for the Dow Jones Industrial Average going back to 1880. That is now 130 years worth of data. In all that time every single 5th year has been a winning year, except the last one, 2005. In 2005 the Dow fell, but it was only -0.6%. In that same year the S&P500 was up 3%. Take a look at the track record of all the 5th years.

Year Dow Return
1885 +20.1%
1895 +2.3%
1905 +38.2%
1915 +81.7%
1925 +30.0%
1935 +38.5%
1945 +26.6%
1955 +20.8%
1965 +10.9%
1975 +38.3%
1985 +27.7%
1995 +33.5%
2005 -0.6%

Source: Standard & Poors

The average change is +28.3%

If this long term pattern holds up, 2015 could be the best year of this decade.

The second reason is due to another US cycle. This cycle is based around the 4 year term of a US presidency.

It has been noted that the first 2 years can deliver weak markets as the new administration puts new measures in place. By the third year of the term, those new measures are starting to have an influence on the economy, and hence stock prices. The third year tends to be the best year of that 4 year cycle.

This phenomenon is so consistent, there has not been a down year in the third year of a presidential term since 1939 when the Dow fell 2.9%..

2015 will be Obama’s third year of his second administration.

So, as you can see, we have 2 cycles with very impressive records converging next year. This does not happen very often. The last time was 1995 when the Dow rallied 33.5% and 1975 when the Dow rallied 38.3% and in 1955 the Dow was up 20.8%

Want an easy way to profit from the unusual convergence of these cycles?

How about making life very simple and buying the Exchange Traded Fund Р UDOW

An Exchange Traded Fund trades in the same manner as a normal stock on the exchange, except rather than being a slice of an operating company, they are run by issuers and designed to track an index.

The US has some very special ETFs, that we don’t have here in Australia, called leveraged ETFs. These are designed to match the same moves an index makes, but leveraged to some degree, normally 2 times or 3 times

UDOW is a 3 times leveraged ETF that tracks the Dow Jones Industrials Average.

If the Dow goes up 1% in a day, UDOW should go up 3%. Likewise if the Dow goes down 1%, then UDOW should go down 3%

If you believe next year could be a good year for the Dow, maybe a potential 30%+ then in theory UDOW could put in a 90% gain for the year.