Many investment professionals, including Warren Buffett, advise investors to buy and hold a diversified portfolio of stocks … and hold and hold. But with today’s record-long bull market, maybe it’s time to try tactical asset management instead.
When is the last time you took a look at how your investment portfolio is performing — and then did something about it?
If your answer is “Hmmm … not lately,” you’re not alone.
Too many people still have the old-school mentality that if they buy a diverse bunch of mutual funds and stocks — spreading out their money into several different buckets — they’ve done what they can to protect themselves against a big drop in the market. They buy and hope — and hope and hope — that by the time they retire, there will be more money in those buckets than when they started.
The Old Buy and Hold Approach Strategy
Who can blame them, when that’s been the prevailing investment theory for more than 60 years? Whenever the market starts to wobble, they’re told: “Don’t worry about it; stick with it. You’re in for the long haul.” Even billionaire Warren Buffett, the “Oracle of Omaha,” tells nervous investors not to watch the market too closely and says that buy-and-hold is still the best strategy.
It may not be. It may be an antiquated approach.
The markets have changed; we’re in a global economy. When something happens overseas — Brexit, for example, or debt or stock shifts in Greece or China — we feel it here. It may not make sense to buy and hold certain investments long term, possibly riding them as they go down. If you have stocks that appear to have run their course, why not take some of the chips off the table and pull some of the profits while you can? Sure, there are exceptions, but sometimes if you hold onto a winner too long, it can become a loser.
Many investors learned this lesson the hard way in 2008 and 2009.
People have come to our firm who used the buy-and-hold strategy then and thought they were safe. They experienced 30%, 40%, or even 50% losses during those years.
A Different Way of Approaching Investing
We talk to them about potentially taking a more active approach with tactical asset management.
Tactical asset management strategy is 100% math-based. It uses short-term and long-term averages to monitor the market, and when the two averages cross over, it’s a signal to become either defensive or bullish. Money managers use technical analysis to move to the sidelines into cash when the market statistical indicators look bleak and to buy back in when their market indicators improve.
Timing the market is never a sure thing, and investors who try to do it blindly can get burned if they let their emotions rule their decisions. However tactical asset management takes the emotional side out the market and focuses on the technical and fundamental aspects instead. That analytical approach can potentially eliminate riding a bull market too long.
Get the Help You Need to Actively Monitor Your Portfolio
So many people get caught up in life and forget about their investment accounts. The years fly by, and they remain passive about their investments until retirement closes in. (Although many don’t lessen the risk even then – you see Baby Boomers who still have almost everything in a bunch of stocks and mutual funds that carry risk.)
Find someone who will help watch your money with you. Look for a financial adviser who is held to a fiduciary standard, who is legally and ethically bound to put your interests first.
Don’t put it off any longer. This bull market may be running on wobbly legs, and hope isn’t going to prop it up.
With current advances in medical technology, Americans today are living longer than ever before. A retiree now has more time than they ever have expected to enjoy their post-career life — and more concerns that the nest egg they saved to fund it won’t last. In this episode, Goldstone Financial Group’s principal advisors, Anthony and Michael Pellegrino, sit down to discuss these fears and offer a few insights into how savvy professionals can leverage their assets to prepare for retirement.
The Pellegrinos begin the segment by outlining a few realities of personal finance today. Pensions, Anthony notes, have more or less fallen by the wayside. As employers step back, individuals need to take over the responsibility of ensuring that they have a steady income for the next twenty, thirty, or even forty years of their lives. Their spending, too, needs to be carefully considered — if retirees blow through too much of their savings too soon, they risk running out of the funds they need to pay their bills. If they spend too little, on the other hand, they may deprive themselves of a lifestyle they could have afforded.
As the pair explains, each individual has a different set of financial circumstances and goals. Some might be more risk-tolerant; others might be more risk-averse — and these preferences will play into the tailored financial plans that wealth managers create for their clients. However, Anthony Pellegrino stresses that regardless of a person’s financial nuances, every portfolio must be diversified beyond the typical set of stocks, bonds, and mutual funds. The careful diversification, he explains, will help mitigate some of the investment risks that some clients might otherwise face.
When the conversation turns to risk minimization, Michael Pellegrino takes the time to explain Goldstone Financial Group’s approach to what the principals refer to as Tactical Asset Management. Most people, Michael explains, are familiar with the “buy and hold” approach — that is, buying assets to hold through good and bad times alike. A TAM strategy is somewhat different: trained money managers use algorithms and their own experience to assess downturn risks, then adjust their investment strategy accordingly. If the risk is high, they can shift into a more defensive position – or change a client’s assets into cash to protect against severe fluctuations in the market.
Tactical asset management, Michael stresses, is not something that clients should attempt on their own. The best course of action would be to enlist the aid of high-level institutional money managers like the one Goldstone Financial Group employs to care for client accounts. These trained professionals work behind the scenes to track market movements and implement carefully-considered investment strategies on a client’s behalf.
Your retirement savings will fund your retirement, so don’t shortchange yourself. Consult a financial professional today to learn what you could be doing to achieve your long-term financial goals!
When it comes to retirement planning, the 401(k) is near-universal. The vast majority of company-employed workers funnel a small portion of their paycheck directly into their tax-deferred 401(k) each pay period. As Anthony and Michael Pellegrino explain in this installment, having this type of investment vehicle is a crucial part of an effective retirement savings strategy. The pair suggests that employees should take full advantage of their accounts by contributing as much as they can, as early as they can; after all, Michael points out, employees essentially accumulate free money if their work-sponsored plan includes an employer contribution.
What most people don’t have, however, is a strategy to handle their old 401(k) accounts. In his experience, Anthony Pellegrino says, late-career employees will often two, three, or even four old retirement accounts scattered across past employers. Most people tend to have an unfortunate “buy-and-hold” mentality when it comes to old 401(k)s and only notice them when the market dives. To make matters worse, the funds in these accounts are often subject to lots of internal fees, poor expense ratios, and sub-account fees. The better savings solution, Anthony explains, would be to roll the funds from those languishing 401(k)s into a single, more strategically-considered account.
Employees nearing retirement have even more options, Anthony points out. If a person is fifty-nine and a half or older, they have the opportunity to apply an in-service rollover or in-service distribution to old 401(k) accounts. While many people believe that they can’t access their current 401(k) during their employment term, those over the age mentioned above can roll the savings from that account into other investment vehicles and think beyond the limits of their company plan. No taxable event takes place when funds shift from a 401(k) into an IRA – so savers should take advantage!
That said, Michael Pellegrino interjects, people who haven’t reached the fifty-nine-year mark have their own set of imperatives. They need to start planning for retirement early on, contribute as much as they can, and ensure that their investment portfolio is diversified in a way that suits who they are.
To summarize: don’t neglect your old 401(k) plans, start contributing early, take advantage of employer contributions, and implement an in-service rollover when you can! If you need further advice and direction, advisors at Goldstone Financial Group can help you tailor these strategies to suit your unique needs.
In this episode, Goldstone Financial Group representatives took to Chicago’s streets to ask residents about their most pressing financial questions.
Anthony and Michael Pellegrino provide answers.
Are mutual funds the best place to invest my money?
Mutual funds can be a great vehicle for investment, but they certainly aren’t the only one available. Every person’s financial needs, situation, and goals are different; one person might be better suited by investing in bonds or stocks – or maybe mutual funds are preferable. Muddling through the possibilities can be difficult for anyone who hasn’t worked in the financial sector for years, so I would highly recommend making an appointment with an experienced financial advisor to understand your options.
My husband’s retiring, how will an annuity help us?
First things first – there is no single annuity. They come in a variety; fixed annuities are high-interest and tax-deferred, while variable annuities have high fees and fixed hybrids limit downside risks. Another option might be an immediate annuity, which would offer money right away, but prevent investors from having cash access. Like any other investment, its suitability varies depending on the financial needs and situations of the investor.
That said, annuities tend to get a bad rap. Michael and I generally tend not to like them, but there are a few great options out there. You need to enlist an advisor to help you make the best choice for your particular set of circumstances.
Am I better investing in ETFs?
Exchange Traded Funds (ETFs) do offer another option for investors. They came onto the investment scene in the last few years as an alternative to mutual funds. Like the latter investment type, ETFs allow investors to maintain multiple ownerships within one vehicle and thereby diversify their portfolio. ETFs also tend to have lower internal costs than mutual funds – but again, it’s best to consult a financial advisor before you settle on an investment plan.
When most people begin to plan for retirement, their goals are usually simple. They want to put aside enough money to live the lifestyle they want and have a little left to pass onto their beneficiaries. They imagine that by saving and investing, they are already well on the path to a successful retirement – but in some cases, covering the basics won’t be enough to secure financial stability later in life.
Too often, people overlook small but crucial details. They might have a substantial savings account and a few investments, but they haven’t realized just how much of their retirement fund they lose to fees each year.
As Anthony and Michael Pellegrino point out in this episode, seemingly small costs can add up quickly. Mutual funds, for example, are positively riddled with small financial demands that run the gamut form 12B-1 costs to sub-account fees and trading expenses. All told, these administrative expenses can claim two percent or more of a person’s investment earnings for the year. To make matters worse, these costs are applied internally, so the client might never realize how much those fees carve out of their profits!
As an institutional fiduciary, Goldstone Financial Group can lessen the impact of administrative costs by bundling them into a single wrap cost – a fee which takes care of advisory costs, covers third-party money manager expenses, and allows for unlimited trading. By packing the fees into one institutionally-managed bundle, Michael explains, Goldstone advisors can lower administrative costs overall by shifting clients out of retail investment and into a more cost-effective institutional setting.
However, avoiding hidden fees is only half of the battle when it comes to savvy investment. Knowing who is managing your money and what their qualifications are, Anthony stresses, is just as crucial to your financial health. While the vast majority of client-facing financial professionals call themselves “advisors,” only registered fiduciaries are legally obligated to put their client’s best investment interests above their own.
Brokers, Anthony goes on to explain, are trying to sell a product. When they convince their clients to invest, they earn a commission. The nature of their occupation incentivizes them to sell more, even when the investment might not be in the client’s best interests.
All of Goldstone’s advisors are registered fiduciaries; as such, they have a legal and moral responsibility to put their clients’ financial interests above their own. Regardless of whether clients choose to sign on with Goldstone or another investment firm, however, Anthony and Michael believe it to be critical that they sift through hidden fees early and find a registered fiduciary to help them plan for retirement. Otherwise, clients run the risk of losing significant portions of their retirement savings to unnecessarily high fees and unscrupulous “advisors.”