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Are you using strategic or tactical investing?

Strategic versus tactical investing. What are they and which one should I be using in my portfolio?  If you haven’t thought about this it doesn’t mean that you don’t use one or the other, it may just mean that you don’t know which one you are using. It’s important to know what these strategies are and even more important to know which one you should use.

Strategic investing is investing for the long term. It means that you analyze your needs and your goals, and you create a portfolio that should meet those goals over your targeted time frame. When implementing strategic investing it is important to have patience and fortitude. Strategic investing doesn’t work well if you keep changing your strategy and hanging onto a strategy is sometimes difficult; extraordinarily difficult in the past decade. We have seen two of the worst bear markets in history in the past decade and they have been preceded by two of the best bull markets. Volatile markets such as we have seen just beg you to do something. It doesn’t make sense in your brain to stay the course. That’s why during difficult times many become tactical investors.

Tactical investors are constantly changing their portfolios.  Tactical investors are always trying to decide what the next best move might be. They look at the markets every day with the idea that there must be something better out there for their portfolio.  And when they find an investment that they think is better, they sell their current investments and buy something new. Tactical investing is much more of a hands-on investment strategy and investors feel like they are “in the game.” They are making decisions all the time that they believe will get them closer to reaching their goals. And, let’s face it, it’s much more fun. It’s more fun to be “in the game.” It’s more fun to make things happen than it is to let things happen and it is much more akin to our generation’s way of thinking, which is immediate response. You are either immediately gratified or mortified. It’s the 100-yard dash versus the strategic investor’s marathon. And most importantly, for some, it gives you much more to talk about at a cocktail party.  Let’s face it, which sounds like more fun, Lori the tactical investor or Beverly the strategic investor?

“Hey, Beverly, I didn’t know you were going to be at this party? How are things? I haven’t seen you in a while.”

“Everything is great. Are you still doing the investing thing?”

“Oh, yea. As a matter of fact, I just found a really hot emerging markets fund that was up 60 percent last year. I bought in at the market close this afternoon. Some analysts think it will double this year. How about you?”

“Oh, I’m still doing the same thing. I took a hard look at everything at the end of last quarter and was still pleased, so I just left things where they were.”

Lori sounds like the most fun to me. The problem is that I just can’t find many people who are successful over the long run using a tactical approach to investing. It is difficult for the experts to use a tactical approach, and they are experts. The good ones have to use an enormous amount of discipline to be successful and that takes using a different part of the brain than most people want to use when they are being tactical. It takes a rare commitment for people who are doing something else for a living.

I like that commercial that is aired throughout the year during major college athletic events.  It shows college athletes playing a sport at a high level and the announcer says, “Most college athletes turn pro…in something else.” Well, most investors turn pro in something else, as well. That statement means that if you are doing your real job right, you don’t have the time to spend on investing that it would require to use most tactical strategies. And so you fail.

Remember when you decide on a strategy, the real goal is to succeed. In my experience, using a long-term strategic approach has provided the most successful outcomes. Don’t worry, you can find something else to talk about at your next cocktail party.

Talk about the 118-degree heat index.


Scott Reed, CIMA, AIFA, is CEO of Hardy Reed Capital Advisors in Tupelo.

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