2016 has not been a great start for investors. All of the major stock markets are in negative territory. Actually 2016 is one of the worst starts to the stock market. The S&P 500 is down -8.00% and the NASDAQ is down -10.34%. The following stocks are very negative:
- Walmart is down -18.64%
- Caterpillar is down -26.03%
- Exxon Mobil is down -16.03%
- Proctor & Gamble is down -12.20%
- Berkshire Hathaway (Warren Buffett) down -11.50%
What is an investor to do in times like now?
Stock market volatility makes investors anxious and nervous about the safety of their investments. Therefore, I submit to you there is a better way to protect your investment portfolio and grow it at the same time. In my previous articles Doing the Stock Market the Right Way and Don’t Forget about Year-End Tax and Investment Planning, I mentioned a more dynamic way to manage your investments through tactical portfolio management.
Tactical Portfolio Management is built upon 3 Investment Principles:
- Minimizing your Portfolio Losses
If you are retired or you are approaching retirement, time is not on your side anymore. For many years, the most popular way to manage your portfolio was through traditional buy and hold asset allocation. Buy and hold investment management is based upon the concept that good quality investments will increase in value over a long-term period (5 to 10 years) in spite of the market volatility. Buy and hold works well in good market conditions. However, the stock market does not always go up. That is why the buy and hold investment strategy is obsolete. From March 2000 to February 2003 the S&P 500 lost 44% due to the tech bubble and it took 5 years to recover. From October 2007 to February 2009 the S&P 500 lost 53% and it took 4 years to recover. Times like now, when the stock market is so volatile, it is extremely difficult to buy and hold and stay the course. Tactical portfolio management creates an exit strategy that can be activated when the market is trending downward. This exit strategy places your investments into cash in order to avoid life changing or catastrophic losses within your portfolio. Thus, allowing you to get back into the stock market at the appropriate time to capture profits when the market is trending upward.
- Diversifying your Investments to a New Level
Most investors know not to place all of their eggs in one basket. It is smart to diversify your investment portfolio across various different asset classes. In addition, tactical portfolio management has the ability to move your investments from different assets classes to capture gains as the market is trending upward or downward. This diversification approach gives investors a peace knowing that their investments are protected.
- Investment Management based on Time-Tested Evidence and Analysis and Not Emotions
If you missed the 10 best days of the S&P 500 (1995 – 2014) you gave up more than 50% of profit. However, if you avoided the 10 worst days (1995– 2014) you gave up more than 135% of profit. This is exactly what tactical portfolio management accomplishes. You capture the best performing days and avoid the worst days to produce exceptional growth. Investment decisions based on emotions cause investors to make poor decisions. Hiring a Certified Financial Planner® that utilizes tactical portfolio management is critical in helping you take emotions out of the investment management process in order to minimize your risk and grow your investment portfolio over time.
For times like now when the market is trending downward our tactical portfolio managers take the “bend but not break” investment approach. In order words, your portfolio will not break and will be positioned to grow in a bear market and/or a bull market.
To learn more about Blake Fambrough and his approach to Tactical Portfolio Management, view his Paladin Registry profile.
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