There is no perfect investment strategy; however, it is hard to argue against a buy-and-hold strategy for a globally diversified portfolio. But, buy-and-hold even goes through periods of underwhelming or frustrating performance experiences, and holding a 70/30, 60/40, etc. portfolio isn’t always an easy thing to do with the markets really test investors–think 2008. Emotions come into play and can make the most disciplined investor to question her beliefs.

One way to help combat the emotions of investor is including a tactical investment strategy. Typically, a tactical strategy involves a set of rules that dictate changes within the portfolio; the rules can vary from the number of funds held, when trades are made, and the frequency of reviewing the rules just to name a few. The strategy can be complicated or simple–it just depends on the investor’s preference.

Our friends, Michael Batnick and Josh Brown, over at Ritholtz Wealth Management did a great video about how a tactical component can be used in a portfolio. They do a great job discussing a simple example to illustrate the potential benefit of following the market trend.

At the beginning of 2018, RLS Wealth Management began using a rules-based tactical component in client portfolios where it makes sense, mostly the portfolios of retirees. Michael makes an important point at the 8:50 mark: this type of strategy is not necessarily an alpha (outperforming the market) strategy, but a behavioral strategy. He also mentions that he believed tactical should be a part of an overall investment strategy. We agree with both statements.

While our strategy is not the same as what is discussed in the video, it gives a good look at the WHY behind the strategy. If you’d like to learn more about how and why we are using a tactical component in our client portfolios, please reach out. We’d love to have a cup of coffee and discuss!

This blog is purely informational and designed to get you to think; in no ways should this information be mistaken for financial advice. Please consult your financial advisor to discuss how this could impact your personal situation.