Over managing your investments could cost you money
April 4, 2022
There are two ways to manage your portfolio. You can take a consistent approach with little change in the allocation to stocks and maintaining that balance over time.
Alternatively, you can make periodic shifts in the weighting of stocks and bonds. These shifts can be based on a specific criterion, or just your gut feeling of how the market will perform in the future.
This is referred to as “Tactical Asset Allocation.”
For example, you might make a decision to change your portfolio based on the inflation rate, the sudden downturn of value for several popular well-known company stocks, or just your current sentiment of the stock market based on either optimism or pessimism.
We can refer to that strategy as being proactive. That is not the preferred way to invest.
Much research has been done on the “buy and hold” versus the “tactical” strategy of change to determine the most profitable way to invest. The conclusion of one study summarizes the futility of attempting to outthink the market through continually changing your asset allocation.
Morningstar published its research conclusion in a September 2021 paper, “Tactical Asset Allocation: Don’t Try This at Home.”
Consider all the things that are necessary to be able to make a profitable decision to fundamentally change the design of your investment portfolio.
You have to be able to predict the future. You have to be able to determine when to sell. You have to be able to determine when to buy.
Peter Watson is registered with Aligned Capital Partners Inc. (ACPI) to provide investment advice. Investment products are provided by ACPI. ACPI is a member of the Investment Industry Regulatory Organization of Canada. The opinions expressed are those of the author and not necessarily those of ACPI. Watson provides wealth management services through Watson Investments. He can be reached at www.watsoninvestments.com