Tuesday, June 29, 2010

Take a tactical approach

If investors have learned anything since the beginning of 2008, it's that buy and hold doesn't seem to work anymore. And even if you think a buy and hold strategy isn't dead, it's just too hard for most people to handle. With the extreme volatility in the stock market today, as noted especially by the markets this year, the average investor must take a new approach. Let's look at the performance of a popular index, the S&P 500. Year to date, if you had money invested in funds that track the S&P 500, such as the SPY, you would be down 3.51%. Over the past 3 years, you would be down a whopping 28.52%. However, in the past year, due mainly to the incredible returns of 2009, you would be up 16%! Wow, that is some roller coaster ride. So what's a better option? Instead of buy and hold, more people are looking at taking a tactical approach to investing. This means being more hands on, making changes to your portfolio, when appropriate, to react to the ever changing conditions of the stock and bond markets. While taking a more active approach to managing your portfolio sounds like more work, and it is, it can help you keep more of your hard earned money in your account. After all, the point of investing is to make money, not lose money. And making up for big losses is much harder than making up for small ones. While the buy and hold index investor is down 3.51% year to date, the active, tactical investor could be up over 4%. That's a difference of over 7.5%! Over the past 3 years, you might be up over 10% instead of being down over 25%. Now you're talking about a 35% difference. So do your homework and talk to your financial advisor about taking a tactical approach to investing, you'll find the ride a little smoother, with less bumps along the way!

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