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The Strategic Fund Switcher |
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What This Is This resource is intended for individuals who want a simplified approach to keeping abreast of their investments. There is a simple graphic scale that summarizes my perceived level of risk and a brief, periodic synopsis of factors affecting their investments so people can understand when to make changes with a minimum of effort. There is no need for extensive ongoing study and analysis. There are no analytical tools for you to learn. You just read the Current Stock Market Risk Scale or the write-up to be aware of what is happening, how it affects your investments, and what you can do about it if you so choose. If this sounds like what you are looking for, become familiar with some basic concepts, gather some information that you will need and then use this resource to do the rest.
That’s it! If you want more in depth explanation of why I think risk levels are where they are, you can check Managing Your 401K for Better Results (my blog), to give you a better understanding of what is happening. Being regularly informed of developing events in this way keeps you proactive. Then, you can position your investments before increasing risks become portfolio losses or growth opportunities escape. Investing well is a daunting task. It seems there is so much to learn. And that’s usually where it stops. At the job you are encouraged to participate in the 401(k). So you do. You are told to diversify. So you do. You passively invest your contributions regularly portioned into a money market fund, a bond fund, a balanced fund and a stock fund and you get your statements quarterly. No surprises. Then, the markets take a dive. When that statement arrives you start to worry that you are going to lose it all and move it into the money market fund. The first problem is that you have become emotional about your investments. The second problem is the statement is two weeks old. The markets may have already come back and you are reacting to old information. The third problem is you lose a great opportunity to move from the conservative bond and balanced funds over to the stock fund to capture the rebound. The fourth problem is you could have avoided the decline in the first place had you moved the stock fund into the money market or bond fund before it happened. All of this has a root cause in passive investment management. You were intimidated into being passive and that is the biggest and most widespread problem of all! Let’s face it. You’re not going to develop the expertise to manage your portfolio well. Most people won’t. That’s why people hire financial advisors, watch CNBC and MSNBC, and listen to Bob Brinker. People want guidance to avoid market declines but don‘t receive it. Ideally, it would require little effort on their part and have a nominal cost. This is the whole focus and purpose of using The Strategic Fund Switcher! Finally, a resource you can understand and use. At this point, if you recognize that the above just described you, then you also recognize that you need to change. 1 - 2 minutes per day spent on your retirement is all the change that is needed. I guarantee that once you start down that path you will realize, with the right guidance, how easy and fun it can be and how powerful your 401K can be in helping you to gain financial independence. You might even develop an interest in what is happening in the markets and start to pay attention to them. In the simplest of terms, it is the movement of money from one mutual fund to another to improve investment returns or reduce risk. Some have tried to chase the latest best fund or run from market losses. Studies have shown that individual investors most often lower their investment returns when switching funds because it is used as a reaction in hindsight instead of pro-action in foresight. Help in understanding market trends, developments, risks and the portfolio changes warranted is the guidance that the average investor always wishes he or she had had after a market downturn devastates their portfolio. An investor has three choices: 1) continue blindly putting money into a retirement fund and hoping for long term growth of the investment, 2) spend years developing the expertise needed to manage a portfolio effectively, or 3) follow the guidance of someone that has already done number 2. My hope is that you will stop doing #1 and try #3 for a year. That’s all it will take for you to make the small change that can have a dramatic effect on your investment portfolio.
Simply put, effective fund switching is taking advantage of the market fluctuations that occur over days, weeks, or months to either reduce risk exposure or increase asset growth. An important point is that in these fluctuations you never get out at the very top and you never get in at the very bottom. But, if you can capture a moderate portion of the upside moves and avoid a portion of the declines, the cumulative effect can easily add 20% to 50% to your portfolio with a few fund switches each year as opposed to a static portfolio. This is not to say that you will be making frequent changes. It is common to have no changes over several months. It is just as common to make changes over several weeks. In 2008, there were opportunities to make changes over mere days, but those were unprecedented periods of volatility. A combination of knowledge and skill is necessary to understand when switching funds can reduce risk or capture gains. These include, within a global context:
It also requires the ability to keep emotion out of decision making. This is the one area that individual investors need the most help with. Following the opinion of an objective resource is most valuable in helping to increase risk tolerance until enough confidence is achieved that emotion becomes less of a problem. The process is very simple and enables you to become engaged in your portfolio management and performance.
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