A traveler’s perspective on portfolio management

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There are different types of investors just like there are different types of travelers. Some people don’t fly at all, and so they drive, it lets them sleep at night (conservative). Some people don’t fly across oceans, and so they vacation domestically, and are happier doing so (moderate). Other people need to jump out of airplanes to feel alive — and statistically most still live a long life regardless of this high-risk behavior (aggressive). These are three different

Arthur Levin
Arthur Levin

people, for sure, and warrant different agendas for their next vacation. The process of strategic allocation does a great job in helping to identify that there is a difference between the “road tripper” and the “skydiver” but does nothing to provide either with the appropriate safety equipment.

The “road tripper” is put into a car, told to head South by strategic allocation, and told not to ask why there are no seat belts in the car. After all, the travel agent might say, “Our research tells us that if you just keep driving, you’ll be fine. Just don’t stop to ask directions, or slow down for any obstacles … just keep going.”

The skydiver is similarly given the opportunity to exit a plane at altitude, just as they requested, but is told to jump out whether they are overtop an empty field, open water, or an active volcano. There are no adjustments from strategic allocation for “conditions on the ground.”

Tactical Investing can mean nothing more than taking the investor willing to jump out of an airplane, and adapting for the reality that he is not willing to do so in all conditions. It may mean allowing someone to traverse the country in a car rather than a plane, if that is what makes sense, but giving them GPS, a brake pedal, and a seat belt. The investor hopes to never need any of the listed safety equipment, but anyone with long-term market experience knows that, given enough time, they will.

By utilizing a tactical approach to portfolio management, we are able to adjust portfolios as market trends change over time.  This provides the “seat belt” necessary to try to smooth out the ride. So, it doesn’t matter if you are a “road tripper” or a “skydiver”, tactical investing can provide you the safety equipment needed to help you reach your objective.

This article was written by Dorsey, Wright and Associates, Inc., and provided to you by Wells Fargo Advisors and Arthur Levin, Financial Advisor and Senior Vice President, Investments, Beaufort, SC, 211 Scott Street, (843) 524-1114.  Wells Fargo Advisors did not assist in the preparation of this article, and its accuracy and completeness are not guaranteed. Investments in securities and insurance products are: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE. Wells Fargo Advisors, LLC, Member SIPC, is a registered broker-dealer and a separate non-bank affiliate of Wells Fargo & Company.