This hasn't been well thought through, but would the following strategy -- over time -- minimize risk in the market and work towards guaranteeing a higher rate of return?
Let's assume a principal investment of $10,000 USD to keep things simple.
- Invest in an average risk / high gain mutual fund and hold it until it has gained some minimum percent. Let's say 10% for now.
- Sell all shares of that mutual fund.
- Invest the gains in a relatively low-interest but guaranteed bond fund.
- Reinvest the principal amount in an average risk / high gain mutual fund. Repeat.
I suppose the idea here is to protect oneself from falls in the market but only ever "risking" the principal amount.
Please don't flame this strategy if it's "obviously naive". The reasons for not doing so may be interesting.