Here is a great summer investment management analogy. I worked very hard on this one.
Imagine you are alone in a sailboat on the water. How would you determine where you want to go?
Obviously, you can’t control which way the wind blows. But you can control how you respond to it.
So, if the wind is blowing east to west, and you want to go west, you would put your sail up. What you wouldn’t do is just sit there with your sail up, at the mercy of the wind, going wherever it goes, waiting for it to change in your favor.
Now, apply that analogy to investing. Many individual 401(k) retirement plan participants only know the “buy-and-hold” investment management philosophy. They put their money in a few mutual funds, hold onto them in both up and down stock markets, and hope for the best.
That’s not a smart way to sail, and it’s not a smart way to invest.
But things get even worse when a hurricane comes. On the ocean, a good sailor will take down all his sails and batten down the hatches. A bad sailor will just sit there with his sail up and try to ride out the storm.
When a stock market hurricane hits like the one in March, a good investor took the necessary steps to preserve as much of their company 401(k) retirement plan principal as possible. A bad investor will just be tried to hold on for dear life.
If there’s one thing I’ve learned during my 36 years as a financial advisor, it’s that no one can control which way the stock markets go. But you cancontrol how you react to them.
Let me introduce you to a technical analysis concept called relative strength. This is a logical, disciplined, and organized system for calculating which particular mutual funds on your company 401(k) menu are holding up the best in a falling stock market.
As the popular stock market averages decline, relative strength provides clear ranking signals that provide you the answer to the age-old, “buy, sell, or hold” investment management decision.
Relative strength identifies the mutual funds on your default company 401(k) mutual fund menu that are falling in value at a faster rate than the overall stock market averages.
You no longer have to guess which way the stock market wind is blowing. Relative Strength mutual fund rankings help preserve your company 401(k) principal in a falling stock market environment.
Relative strength plots a clear exit strategy that ensures you don’t stay fully invested in a bad mutual fund in the early stages of a stock market hurricane.
Relative strength isn’t perfect. Like everything else with stock market investing, it’s not foolproof. But relative strength is a tried and tested stock market risk management strategy based on common sense.
If you would like to learn more about how relative strength works and whether it’s an appropriate strategy for you, let me know. Let’s connect on Linkedin and I can provide you more details and answer your specific company 401(k) mutual fund questions.
In the meantime, remember: we can’t control the wind, and we can’t control the stock markets. But we can control how we react to both. After all, it’s our decisions that determine whether we will reach our retirement goals in life.
Ric Lager
Lager & Company, Inc.
