As a financial advisor, I get the chance to meet new people every day. Some want help with creating a financial strategy; others just want a second opinion of their investment portfolio. But regardless of who they are or what they want, pretty much everyone asks me the same question:
“How can I grow AND protect my money so I can reach my goals in life?”
It’s a great question, because growth and protection are both important. After all, you do have goals, don’t you? You don’t want to see your money just sit around and rust. You want to do things with it. Whether it’s retirement, travel, starting a new business, sending your grandkids off to college, or even building a new home, you want to consider investing in your own future by investing in the markets. But if you’re like many people, you also want to have confidence that your money will last throughout your life.
We help our clients with this important question by using a strategy called relative strength. But what our strategy is called is less important than what it does. To explain what it does, picture this scenario:
Imagine you are alone in a sailboat on the water. How would you determine where you want to go? Obviously, you can’t control which way the wind blows. But you can control how you respond to it. After all, that’s what your sails are for. So if the wind is blowing east to west, and you want to go west, you would put your sail up. If the wind were blowing west to east, you would tack. What you wouldn’t do is just sit there with your sail up, at the mercy of the wind, going wherever it goes, waiting for it to change in your favor.
Simple, right? Now, apply that analogy to investing. Many investors practice a philosophy known as “buy and hold.” They put their money in a few investments and hold onto them, hoping the value will go up. In other words, they wait for the wind to blow in their favor. In the meantime, they go where the markets go: up, down, sideways, you name it.
I believe that’s not a smart way to sail, and it’s not a smart way to invest. But things get even worse when a hurricane comes. On the ocean, a good sailor will take down all his sails and batten down the hatches. A bad sailor will just sit there with his sail up and try to ride out the storm. Similarly, when a hurricane hits the markets (remember what happened in 2008?) some investors will try to get out of the markets to potentially protect against losses. A bad investor will—you guessed it—just hold on for dear life.
Back to relative strength. If there’s one thing I’ve learned during my 30+ years as a financial advisor, it’s that no one can control which way the markets go. But we can control how we react to them. That’s what relative strength is designed to do. It is a system for calculating which particular investments are currently the strongest relative to the overall market. Instead of buying an investment and simply waiting to see what happens, relative strength enables us to look for those investments that are most in demand now, compared to other investments that look similar but are less in demand. In other words, instead of guessing which investments will rise in the future, we focus on suitable investments that are already on their way up and look likely to keep rising. But as soon as an investment is no longer strong – if its value falls below a certain point, for example—we will sell it and buy into the next suitable rising investment.
What does all that mean in plain English? It means we don’t just buy, hold, and wait for the wind to blow the way we want it to. We use relative strength to only focus on investments rising now, and then sell them as soon as they start to appear weak. It’s how we keep moving in the direction we want to go. It’s how we use all the tools available to us instead of simply relying on the wind. It’s also our exit strategy for ensuring that we don’t stay in any one investment too long when the next hurricane hits.
So if you want to:
- Potentially grow your money systematically instead of buying and holding/hoping,
- Focus on investments that are doing well now instead of those that may or may not in the future,
- Know that you have an exit strategy to potentially protect your money against severe market losses,
Then relative strength—and my services—may be a good fit for you.
Keep in mind that no system or strategy is perfect. Relative strength isn’t magic, it’s not foolproof, and it’s not infallible. So here’s what I recommend. If you would like to learn more about how relative strength works and whether it’s an appropriate strategy for you, let me know. Let’s sit down and discuss it in detail. Ask questions. Poke. Pry. Look under the hood! I would be happy to speak with you and give you more information.
In the meantime, remember: we can’t control the wind, and we can’t control the markets. But we can control how we react to both. After all, it’s our decisions that determine whether we will reach our goals in life.
Please contact me with any questions you might have. I look forward to hearing from you!
