“It’s not how much money you make, but how much money you keep, how hard it works for you and how many generations you keep it for,” stated author Robert Kiyosaki.
When you invest, you inherently are thinking long term; however, thinking long term does not mean that there is only one way to approach investing. Kiyosaki’s view seems to be consistent with a philosophy that some have of winning by not losing.
With the overall equity markets’ general run-up since November of last year, some investors are beginning to feel uncomfortable and are considering that it might be time for a pullback. While believing in the long-term future of thriving global equity markets, is there anything that investors can do when they begin to feel this uneasiness?
Asset allocation and rebalancing toward a strategic target allocation has been shown to result in favorable outcomes in academic research. This process of rebalancing takes a small portion of the appreciation in securities and moves it to other assets that have not appreciated to the same extent.
Rebalancing allows investors to capture gains while values are up and invest in areas of the market that are out of favor. These are generally fairly small moves, but they could yield benefits over time.
There are other philosophies or strategies in the investing world that are less followed and not as well supported by academic research but might allow investors to feel more empowered during market corrections. Two of these strategies are market-neutral and tactical investing.
When using a market-neutral approach, often the investment manager will invest both “long” and “short” in different areas of the equity markets, possibly holding different companies in the same industry in opposing positions. When investing in this manner, an investor has the potential to benefit whether the market moves up or down.
When using a tactical approach, investment managers analyze graphs and quantitative data or equations to interpret what is happening with the long-term trends in the equity markets.