Toward the end of August, we experienced a shocking slump on Wall Street. For those planning for retirement, or beginning to think about investing in a retirement fund, this news might have been discouraging. After all, you’ve pinned your future on the health of your investment portfolio.
For Mark Roberts’ Use: On the other hand, some investors sailed through the drop without major losses or worries for their own future. What’s their secret? Most likely, they engaged in tactical portfolio management, and experienced less loss due to their smart strategic planning.
Financial experts have always advocated a “buy and hold” approach, and we’re not saying that’s a bad plan. However, the “buy and hold” theory works best in an efficient market, and our market wasn’t behaving too efficiently in August! Buy and hold can still work out just fine for most of you over the long term, but adopting a more dynamic approach to managing your portfolio can indeed help to prevent major losses like the ones we recently saw.
Under the “buy and hold” strategy, you allocate your assets across classes, and leave them there for the long term. You know there will be dips and rises in the market, but you’re looking ahead to twenty or thirty years from now. Generally speaking, you can count upon those assets to gradually grow.
Tactical portfolio management adds another dimension to your investing philosophy. When you engage in this strategy, you actively analyze the market and respond accordingly by shifting your assets to guard against risks and losses. Nothing is foolproof, of course, but this type of portfolio management might suit those of you who feel more than the average amount of anxiety about your investments.
There is no simple answer that works perfectly for everyone, all of the time. Talk to your financial advisor about tactical portfolio management, and compare the risks and benefits to your current approach.