• Tim Lofton

Preventive Medicine for Your Investments


Timothy P. Lofton, Managing Partner - Cornerstone Consulting Group | CEO - The Retirement Blueprint™ | Author | Speaker

Published on March 26, 2018


Why Tactical Money Management Makes Sense – Dollars and Sense!

In November 2017, global equity markets posted their 13th-straight month of positive returns, as measured by the MSCI World Index. This was the longest winning streak in the index's history, going back to its inception in January 1970.


Synchronized global growth, strong corporate profits, high operating margins, low interest rates, and low volatility have all been credited with aiding the market's relentless ascent.


Given this environment, perhaps it's not surprising that managers that can dampen portfolio volatility and truncate the downside when markets turn south haven't exactly been flying off the shelf.


According to Morningstar, as of Oct. 31, 2017, assets under management for the entire Tactical Strategy (Long/Short Equity) amounted to only $37.8 billion, a mere 0.4% of the assets under management in U.S. Equity and International Equity mutual funds and ETFs.

Further, over the trailing 12 months, these same equity funds only took in $316 million on a net basis, while equity funds and ETFs brought in approximately $245 billion, or 775 times as much.


At a time when virtually all valuation measures for both public and private equities are at levels only partially exceeded during the tech bubble of 2000; and central banks around the globe are beginning to unwind their massive stimulus programs, it strikes us as more than a bit shortsighted that investors have been hesitant to embrace strategies with hedging and tactical management.


But we get it, the S&P 500 returned 22.9% over the year ending in November, while the median long/short equity fund only returned about half that. What must happen though, for that kind of stock market performance to repeat?

To believe that the market will simply continue to advance unabated is to believe that market conditions will get even better than what is already priced into asset values. Investing is always a forward-looking endeavor, and complacency and greed can be dangerous.


With that in mind, one of the primary advantages of Tactical Management is the ability to capture much of the upside when markets rise, while simultaneously dampening volatility and protecting against the possibility of a large loss.


The importance of which cannot be overstated.


As we have lived through two major market meltdowns since 2000, investors are painfully aware of the math of a big loss; it can take years to get back to even, losing the precious commodity of time along the way, which robs investors of the magic of compounding.

Consider that the maximum drawdown (i.e., the loss from peak to trough) for Our Moderate Aggressive Sleeve was +0.2% during the financial crisis while the S&P 500 experienced a drawdown of 50.9%.


Since the investor experienced no loss, they would need a return of 0% from the bottom to get back to even, while an investor in the S&P 500 required a return of 104%.

The point being, while any loss is undoubtedly tough to stomach, not having to climb out of a hole is far less daunting than what faced a majority of investors — and many investors might not have time to rebound from significant losses, particularly those nearing or already in retirement.

Investors need to be preparing for the next downturn now, precisely because predicting the timing of such an event is near impossible, and we know that our starting point in terms of valuations is ominous.


Investors should be thinking about how to build portfolios in a different way from what they have done historically if they expect to have different results.


Traditional risk mitigators like investment grade bonds will likely be unable to be nearly as effective as in the past, given current yields and the high probability of rising interest rates, which are still hovering in historically low territory.

We believe that investors need to be reducing risk at this point in the cycle, both equity risk and interest rate risk, and one tool that can help to accomplish that goal is tactical management. For our clients we made the switch almost a year ago and while they certainly did not fully participate in the last 12 months of insanity, they definitely slept better knowing that they had the downside protected while still experiencing a respectable return.


Are you ready for the next “Big One”? Consider a free one hour strategy session and a no obligation risk analysis of your current portfolio. For the last 25 years, we have been helping clients navigate to and through retirement with our trademark process The Retirement Blueprint™



  • YouTube
  • Twitter
  • Facebook
  • LinkedIn
bbb logo.jpg

The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained on our Site constitutes a solicitation, recommendation, endorsement, or offer by The Retirement Blueprint™ or any third-party service provider to buy or sell any securities or other financial instruments in this or in in any other jurisdiction.  All Content on this site is information of a general nature and does not address the circumstances of any particular individual or entity. Nothing in the Site constitutes professional and/or financial advice, nor does any information on the Site constitute a comprehensive or complete statement of the matters discussed or the law relating thereto. The Retirement Blueprint is not a fiduciary by virtue of any person’s use of or access to the Site or Content. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of any information or other content on the site before making any decisions based on such information or other content. In exchange for using the Site, you agree not to hold The Retirement Blueprint™, its affiliates or any third-party service provider liable for any possible claim for damages arising from any decision you make based on information or other Content made available to you through the Site.

©2020 by The Retirement Blueprint™