Most traditional investment management strategies are predicated upon actively encouraging investors to continue investing and keeping their money at risk even when markets are at a high. FOMO or the “fear of missing out” is the tool commonly used to encourage investors to continue pressing for higher gains in their portfolios.
But does this make sense for those who are in or close to entering the “income” phase (i.e. retirement phase) of their life? At BFF Financial we do not believe that it does.
The Wall Street rollercoaster ride can be described using the “greed-fear cycle” (shown in the chart below) that seemingly actively encourages buying high and selling low - which is the exact opposite of what you’re supposed to be doing with your investments.
A “buy, buy, buy & hold” approach to investment management is “sold” to Main Street through the financial media. However, institutional managers (i.e. Wall Street) are actively managing their portfolios in an effort to minimize risk and avoid losses. These active managers understand very well that large losses hurt their long-term performance much more than not receiving all of the market’s upside each year.
In the “investment game”, just as in any game, there are times to play defense and other times which favor being on the offensive side of the risk/opportunity cycle (shown in the chart below.) Why? The math of market losses for those who are in retirement, or nearing retirement, will show that market losses (at the wrong time) can be financially devastating that can be very difficult if not impossible to recover from.
It is due to the “math” of market losses for those in or near retirement combined with the fact that we appear to be in the late-stages of the current economic cycle (with markets at all-time highs) that we believe it makes sense to consider moving your investments into “defensive” positions or defensive investment strategies.
Are we suggesting that you should “hide in cash”? No. It is important for investors who cannot afford to lose principal to actively seek out defensive investment strategies which also deliver a decent upside potential. We call these “win by not losing” investment strategies.
Use the button below to schedule your Investment Portfolio Review and to learn more about what we are doing with our clients right now in an effort to help them “win by not losing.”
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