Tactically Managed Accounts

Imagine you’re in a mall with your spouse and you realize there was something you forgot in the car. You then suggest, “honey, wait right here so I can find you. I’ll be right back.” Your spouse waits where you agreed, but starts to smell smoke. Should they call you and tell you they’ve adjusted the plan and will try to meet you at the car as well?

What if the same situation existed and there is no smoke in the mall, but as you reach the parking lot you see fire engines approaching, lights flashing, sirens blowing, then firemen running inside? Would you contact your spouse to make sure they are out of harm’s way? The answer, I hope, is we all make plans, but part of the plan is to be flexible when the situation changes.

Let’s now say that the two of you are driving to a favorite restaurant in town when you hear on the radio that one of your other favorite restaurants is offering 30% off everything on their menu. Would you at least discuss changing your plan and saving 30%? It’s a fact of life, situations change. In our daily lives, most of us make regular adjustments to unfolding sets of circumstances. For example, when traffic is moving slow on the route heading into my office, I look for a chance to take a different avenue, one that’s moving faster. One might think I’m changing the original plan, but my original plan has the caveat that allows realignment with my goal.

Many people don’t allow for defined caveats in their investments and retirement goals. They are either buying, holding, and hoping that over time markets repeat historic averages, or they are reacting to account statements mailed to them after it’s too late. They may benefit from a process which tactically adjusts with the changing markets.

Tactical Investing

At its core, tactical investing, or having a tactically managed account, requires diligence. After all, it’s a deliberate process that aims to align your account with the current state of the market. The often touted “buy and hold” strategy can be part of tactical investing as long as holding makes sense within current market conditions — or if buying can be rationalized at current prices. However, very often buy and hold seems to be more of a tool of convenience.

Some investment firms have a reputation for taking your risk profile, which by the way is based on your age and a handful of questions you probably guessed at, then treating it like it’s a magic answer. Their ideal allocation model, the basis for your portfolio, is often decided by someone who has never even met you — possibly three time-zones away. Client’s are told this allocation is designed specifically for them. The truth is, it is not designed by someone who has taken the time to truly know them and it is not even designed using up to the minute economic information. Most of the pie chart models weigh in a series of averages which ultimately can only make the suggestion average under average conditions.

This is why I left a big firm when I did.

My clients aren’t average, they deserve better. Plus, there is no way I want to be dissuaded from suggesting that my clients rotate out of a sector that is trending down while ignoring one on the rise. Markets can move down quickly. For the year 2008, the Dow lost 33.8%. For those invested and already in retirement and also depending on taking allocations from their equity accounts, this was devastating. No one wants to hear, just sit tight, stocks will be back one day. Remember, in order to recover from any point drop you need twice the growth. In other words, the market would have to rise 67.6% just for investors to be at their starting point. If they’re taking even a small amount out to live off, it becomes mathematically less possible to ever recover.

Pie chart allocations are designed to make life simpler in theory, but the inflexibility can be a hinders next. Investment flexibility under various scenario analysis is part of the tactical process. If one market is at the top of its price range, as a tactical manager, I may give you the advice to take some profits off the table. That is, I would rotate you out at the high price level and perhaps rotate you into a market segment that is considered lower priced and trending up. This is buy low, sell high with the added benefit of allowing your account to get out of the way of trouble. Traditional buy and hold has its place when markets are more stable, but with decades long volatility and the idea that most people over the age of 40 don’t have 30 years to wait for markets to return, tactical management can steer your account to preferable holdings.

Deciding if Tactical Management Could Benefit your Savings

About that aforementioned fire, most aren’t willing to ignore the smell of smoke and most will take protective action when red lights are flashing and sirens are blaring outside of our building. In the same vein, no one throws money away while turning down money being handed to them. But there are households that are doing this, people that are otherwise careful with their households that take it upon themselves to figure out their own wealth management process. They try to figure out how, why and where to invest on their own, and most of them have very few of the tools and analysis available to a full time, reputable professional wealth management company.

These folks may not smell the market smoke until they are getting somewhat burned — or completely consumed. If you wish to learn more about the process of preserving and enhancing your accumulated wealth, call today. We’ll help you best understand how employing tactical management may improve your investment outcome. Thank you, Chris Wright Wright Wealth Management

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