The Donoghue Strategies

When interest rates go down, stocks go up; when interest rates go up, stocks go down. This phenomenon, well observed by professional money managers, is at the heart of THE DONOGHUE STRATEGIES. Donoghue shows average investors how to determine the direction of interest rates by comparing a moving average of money fund rates with the current rate, an exercise that takes the “ten minutes a week” in the book’s subtitle. This done, he instructs them to put their assets into selected stock funds when interest rates are falling and into money funds when rates are rising. He calculates that this method would have more than doubled the returns of the average fund over the last eight years, providing a compound annual yield of close to 18 percent during a period that included the biggest stock market crash in history.

Donoghue modifies his investment recipe to suit the circumstances, preferences, and temperaments of different investors, providing a cookbook of strategies using bonds, retirement plans, and insurance policies in addition to stock and money funds. He provides summary charts, comparison tables, and lists of standards for evaluating the instruments an investor may encounter. His advice is highly specific: He tells which newspapers publish the figures needed for his weekly calculation; he cites specific firms that offer the instruments he recommends (including addresses and telephone numbers); he even provides the numbers of the forms an investor should use to execute transactions such as an insurance rollover.

In an area where uncertainty is the rule, Donoghue’s advice is often unequivocal. No-load mutual funds “are the ideal investment,” plain and simple. On the subject of unit investment trusts, he states flatly, “Don’t touch them.” At times his surety becomes unkind: “Savings bonds are for kids and patriotic financial fools.” Yet his recommendations are so well-supported and his menu of strategies so extensive that even the inexperienced investor is provided with enough grains of salt with which to take his harsher comments. Seasoned investors may be introduced to some tactics they had not considered: His arguments for single-premium variable life insurance policies and charitable remainder trusts are especially provocative.