Investing for retirement is difficult without the required knowledge and skills, there are many challenges to overcome. Even knowledgeable investors may not have the time to monitor and adjust to rapidly changing markets. Having a good understanding of markets, and having a plan of action in crises conditions, are two very different things.
One of the most well documented characteristics of markets is the market cycle. Years of increasing stock prices followed by months or years of decreasing prices. This bull and bear cycle is the most daunting challenge long-term investors face. Without a pro-active action plan years of growth can be wiped away in months or even weeks.
Savers and investors know the dangers of owning risk assets. They've endured the bear markets that stripped away a large percentage of their savings. What's often unclear is how to avoid these large setbacks.
Fortunately, markets provide clues that tell us how healthy they are. These technical indicators keep us informed of the markets overall condition. They give us an opportunity to respond when there's an elevated cause for concern. It's a process known as tactical risk management.
Tactical risk management is the process of reducing account risk in response to worsening market conditions. Unlike buy and hold investing, TRM acknowledges the potential danger a large drop in stock prices has for investors. A systematic reduction of account risk, in proportion to the size and duration of the downturn, helps preserve and protect client accounts.
By combining the proven process of asset allocation, and the dynamic process of TRM, long-term investors can avoid large losses. Preserving principal increases the compounding that's crucial for investment success.
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Registered Representative, Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC to residents of Texas. Investment Advisory Services offered through Cambridge Investment Advisors, Inc., a Registered Investment Advisor, to residents of Texas. Muecke Financial, Inc. and Cambridge are not affiliated.