CHOOSING YOUR INVESTMENT STRATEGY

You don’t have a lot of good options as a 401K investor when it comes to your investment strategy.  Your strategy is very important, however, because your strategy dictates your results, and your results dictate what kind of retirement you will have – comfortable or difficult.

ULTRA-CONSERVATIVE

Some people simply cannot stomach any losses in their investment portfolio. These people are called highly risk-averse investors. They are forced to limit their investments to money market funds, guaranteed income funds, and shorter-term bond funds. Stocks are not an option for them. As a result, they end up with low investment returns – between 2% and 4% per year.

ASSET ALLOCATION

You can follow the advice of the investment industry professionals and spread your money across a bunch of different assets. They will put you in a variety of stock funds, large cap, small cap, value funds, international funds, etc. They will also tell you to invest in bond funds. This strategy is the equivalent of the Target Date funds or Lifecycle funds that most 401K plans offer. Following this “blended or balanced” approach will give you annual investment returns that are a little higher than the typical conservative investors - somewhere around 6.5% per year. The Target Date fund investors still don’t get high enough returns to be able to retire comfortably. And Target Date fund investors also get crushed in stock market collapses.

ASSET ALLOCATION WITH ASSET ROTATION

This is version of the asset allocation strategy described about but it involves shifting money between asset classes based on forecasting which asset classes will do better in the next twelve months for example.  Since it involves forecasts which are usually wrong, these investors typically end up doing worse than the standard asset allocation approach.

GROWTH

This strategy relies on investing in the funds with the best long-term performance.  The funds with the best long-term performance are stock funds - large-cap index funds and large-cap growth fund.  These investors can achieve long-term (20 years plus) annual investment returns of between 9% and 10%.  But it will be a rocky ride.  Growth investors suffer the big losses in bear markets.

GROWTH WITH PROTECTION

This is our Beyond Buy & Hold strategy/system delivered via our Market Signals alerts. It is the same as the growth strategy described above but it shifts money out of the stock market and into safer assets when the risk of a stock market collapse is high and it shifts money back into stocks when the market rebounds.  In the long-term, this strategy can produce annual returns of 12% to 13%.  It achieves similar results as the Growth strategy in bull market but loses less money in bear markets. And, more importantly, it does not force investors to Buy & Hold & Suffer through market meltdowns.  You can learn more about Market Signals by clicking on the home page in the menu bar at the top of this page.

Which investment strategy do you follow? 

Happy Investing,

Phil

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Disclaimers The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.

Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.