Almost risk free investment?

Discussion in 'Trading' started by drukes1234, Jun 12, 2008.

  1. I know this is a traders forum but as an investor from Canada, I can't help but see this being an absolutely incredible time to start buying the SPY. The Canadian dollar 10 years from now will be lower, and the S&P 10 years from now will be higher. My game plan is to buy the SPY's (denominated in US dollars) and hold for 10 years. I will buy 25% of my position tomorrow and add to a 100% full position as the market plays out. My theory behind this trade is simply that in 10-15 years the Canadian dollar will be lower and the S&P will be higher......

    Any comments?
  2. To be honest, I think your trade is not risk free. The odds are actually stacked against you. Look at it from a purely statistical viewpoint:

    SPY higher in 10 years = 50% chance true, 50% chance false
    Canadian Dollar lower in 10 years = 50% chance true, 50% chance false

    Since you want both the ETF trade and the currency trade to go your way in 10 years, the probability of success is (50%)x(50%) = 25%.

    Now look at the return. If you would have bought $10,000 worth of SPY in 1998, today it would be worth about $14,000. That works out to roughly a 3.5% annual rate of return. I'm not sure that's a good enough return for the risk of holding SPY for 10 years. If it were me, I would be looking at a mix of stocks, T-bills, emerging nations gov't bonds and CDs to diversify the risk and earn a higher return.
  3. I guess all I can say to that is I very strongly disagree that there is a 50% chance in 10-15 years that the S&P and Canadian dollar will be not be higher. The fact that there has been such a pathetic return since 1998 on the S&P is a big reason I'm looking to buy it....
  4. the 50/50 argument is very weak.

    anyhow...have you thought about all of the massive shortfalls that are upcoming for america with medicare and social security? potentially add national healthcare to that and you have a nice recipe for a weaker dollar. agree or disagree?
  5. If you're that confident, atleast use the SSO - it is the leveraged ETF for the S&P 500. :D
  6. thelost


    i live in canada and have also been considering gradually converting funds to usd and dca into index funds....

    but i fear a huge 1929 drop lol. or a gradual drop like japan.

    the bank of canada has repeatedly said they want a lower canadian dollar compared to USD to help our exports since we do lots of exporting to US.

    what do you guys think is the strongest currency long term time frame?

    like a currency to buy for 10 years investment?
  7. Daal


    just the opposite, CAD will be higher and spy will do anything adjust for inflation. if you are bullish on stocks then stick with TSE index
  8. Currencies and equities are called "risky assets" - not "almost risk free assets" - for a reason.
  9. bighog

    bighog Guest

  10. GTS


    Have you considered how much of the S&P gain over the 10 years will be the result of inflation?
    #10     Jun 12, 2008