Common Portfolio Wisdom – “WE’RE IN A NEW ERA… OLD MARKET RULES DON’T APPLY”

Michelle Bertram and Beverly Bertram are financial advisors living in Mineral Point WI and serving the surrounding communities. Michelle Bertram does financial planning for retirees along with business consulting. Beverly Bertram specializes in retirement planning and income planning for her clients. Michelle Bertram and Beverly Bertram are authors of the book, Creating You DREAM Retirement and creators of the DREAM Retirement Process. Serving Madison WI, Verona WI, Mount Horeb WI, Barneveld WI, Dodgeville WI, Dubuque IA, Platteville WI, Lancaster WI, Cuba City WI, Fennimore WI, Darlington WI, Monroe WI, Spring Green WI, Black Earth WI and beyondPros –

Many new factors including internet, speed of information, baby boomers, global markets and the continued war on terror.

Cons –

The appearance that we are smarter. Details abound, the structure remains; factors change, results are consistent. Society changes, human nature doesn’t.

Axiom – We are never in a new era. Market action is a reflection of human reaction. Human nature is the constant in the equation.

World financial markets are continually changing as society becomes more complex, but human

nature remains the same. Your deepest emotions were not designed to help you make rational

investment decisions. They were designed to make quick immediate-gratification decisions or get out

of danger now decisions. Unfortunately, investors usually underperform markets when they bounce

between fear and greed, making emotional investment decisions along the way.

 

Investors are often told to remove the emotional factor by committing to a traditional strategy that

attempts to protect portfolio assets with perceived diversification and keeps them fully invested no

matter how much risk is in the market. The more spread out your assets is, the less impact one

investment will have on the overall portfolio. That’s basically the idea, but in reality, traditional

strategies are diluting returns in up markets and overexposing assets to risk in down markets.

 

Traditional strategies give control to the market and force investors to accept whatever returns the

overall market produces, good or bad. These strategies can sound logical, especially when markets

are going up, but investors often have a difficult time sticking to traditional strategies when markets

are collapsing. It’s very difficult to be “rational” when savings that took decades to accumulate

evaporate.

 

A good tactical strategy requires discipline and the ability to stay in harmony with market trends and

countertrends. When market trends are favorable, a tactical strategist will go for growth. When they’re

unfavorable, the strategist gets defensive to avoid losses. Being in cash when markets are crashing

can feel just as good as making money when markets are soaring. Tactical investors often feel calm

and safe being in cash during major drawdowns, and optimistic about taking advantage of

significantly lower prices when risk dissipates. They can also feel empowered and grateful when

traditional investors are suffering.