Looking for a winning strategy in today´s tough financial
marketplace? Consider singer Kenny Rogers´ advice in "The Gambler,"
his big 1970s song: "You´ve got to know when to hold ´em and know when
to fold ´em."
Sarasota financial planner Phil Couture www.couturefinancial.com
says it no longer makes sense for investors to follow a passive
"buy-and-hold" strategy, waiting for those stocks to increase in value
through the years.
"Instead, you should consider an active management style for your
portfolio, taking steps to reduce your losses in a declining market
and preserve your capital so you have more to invest in the future,"
said Couture, CFP, president, Couture Financial, Inc. "It´s a flexible
approach followed by many savvy investors."
A Certified Financial Planner who has helped thousands of clients
since 1977, Couture says the theory behind a passive approach is that
no one can "time the markets" - forecasting upward or downward moves -
so an investor might as well hold onto those assets indefinitely. Of
course, real life isn´t that simple and even passive investors may
need to make adjustments in their portfolios from time to time.
But Paul Samuelson, an MIT professor and one of the nation´s
leading economists, has pointed out that the longer an investor holds
a stock, the more likely there will be a major market upheaval.
Couture says that´s certainly true with Wall Street´s market
cycles, According to a study by NDR Research, there have been 33 bear
markets since 1900 as measured by the Dow Jones Industrial Average.
Since it most recent peak in October 2007, the Dow has fallen nearly
40 percent, one of the most severe bear markets in the past century.
For most investors, the worst pain in a bear market comes from
seeing the loss of principal in their accounts, such as when a stock
falls from $50 to $25 a share. "But there´s another type of loss that
can be even worse," said Couture. "Inflation reduces the purchasing
power of your assets over time - a major drawback to passive
investing."
With the President-elect and Congress debating a new stimulus on
top of the $700 billion bailout and the high level of U.S. debt,
inflation is almost certain to return in 2009, said Couture, and
investors will need to adjust their strategy once again to address
this threat.
"For investors, the conclusion seems clear," he said. "An active
management strategy is best suited for this volatile global
marketplace."
Phil Couture is president and founder of Couture Financial, Inc.,
Sarasota, holds the professional designation of Certified Financial
Planner (CFP(R)). Since founding the firm in 1977, Couture has helped
thousands of clients achieve their individual investment objectives
with minimum risk.