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How to Limit Your Losses

Filed under: Retirement

cadillac-taxIf you’re like most people, you are feeling understandably worried about the recent drop in the stock market. You might be worried about your retirement plan, or you’re already retired and you’re concerned about your future income. Then there are those of you who have just begun to prepare for retirement. Recent events might not have harmed you too much, but you’re feeling antsy about the future.

Then there are the people who rode out the storm relatively unscathed. Sure, they may have seen some losses, but their portfolios are looking fairly healthy when compared to many others. Who are these people, and how did they manage to limit their losses?

These people probably engaged in tactical portfolio management, a strategy in which you actively manage your portfolio in response to current market conditions. Many of you have always followed the old “buy and hold” approach to investing, working under the assumption that the market always works efficiently. But we are seeing that that is not always the case! Many professionals in the financial industry are abandoning that philosophy in favor of a more dynamic approach.

These investors allocate across classes, while responding to current valuations and market conditions. Rather than spreading out your assets and hoping that time will do its job to mitigate losses, you and your financial advisor actually analyze market conditions, assess risks and costs, and make decisions about your assets in response to those factors. It’s a more active approach to investing, and it requires skill, but tactical portfolio management can help you to enjoy the upside of the market while guarding against potentially large losses.


*Active portfolio management including market timing can entail transaction costs and tax consequences that should be considered when determining a portfolio management strategy.  Active portfolio management does not guarantee a profit or protect against a loss in a declining market.