Here is a great summer investment management analogy. I worked hard on this one.
Imagine you are alone in a sailboat on the water. How would you determine where you want to go?
You cannot 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 would not do is 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 401(k) mutual fund investing. Most 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 is not a smart way to sail, and it is not a smart way to invest your 401(k).
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 sit there with his sail up and try to ride out the storm.
A stock market hurricane has hit your 401(k) the last few months. A good investor took the necessary steps to preserve as much of their 401(k) principal as possible. A bad investor is trying to hold on for dear life.
No one can control which way the stock markets go. But you can control how you react.
Let me introduce you to a technical analysis concept called relative strength. This is a logical, disciplined, and organized system. For calculating which mutual funds on your company 401(k) menu are holding up the best in a falling stock market.
All the popular stock market averages have declined over the last few months. Relative Strength provides clear signals. To the age-old, “buy, sell, or hold” 401(k) mutual fund investment management decisions.
Relative Strength identifies your worst 401(k) mutual funds. The mutual funds you do not need to own in a falling stock market environment.
You no longer need to guess which way the stock market wind is blowing. Relative Strength preserves your 401(k) principal in a falling stock market environment.
Relative Strength plots a clear exit strategy. To ensure you do not stay invested in a bad mutual fund. All the way down to the bottom of the stock market decline.
Relative Strength is not perfect. Like everything else with stock market investing, it is not foolproof. But Relative Strength is a tried and tested stock market risk management strategy. Based upon independent analysis and common sense.
If you would like the Relative Strength rankings of your 401(k) mutual funds, let me know. Respond in the comments section below. Or let’s connect on LinkedIn.
In the meantime, remember we cannot control the wind. And we cannot control the stock markets. But we can control how we react to both.
Our 401(k) investment management decisions will determine our retirement goals.
Ric Lager
Lager & Company, Inc.
