Broker Check

Should I Change My Portfolio Strategy?

| June 20, 2022
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Is My Investment Approach Still Right For Me?

These periods of heightened market volatility can motivate investors to question their portfolio strategy.  Am I defensive enough? Should I shift from passive to active management?  Am I diversified for a recession? Should I take advantage of the downturn? Should I use alternative investments?  To address these important questions it's important to understand the differences between investment approaches in order to compare opportunities.   

Three Investment Approaches 

The term 'investment strategy' is used to describe various methodologies managers use to determine asset allocation. Asset allocation then determines which investments a manager chooses. There are many different strategies catering to a wide range of investment goals.  Investment strategies are often differentiated with terms like 'active or passive', or 'tactical and strategic'.  To help distinguish between strategies we categorize them into one of three approaches based upon the role they play within a portfolio. 

  • Core Market Strategies provide broad exposure to growth in domestic and global economies.  Core strategies tend to focus on long term efficiency and perform best during periods of economic expansion. During corrections core strategies may be rebalanced to maintain risk exposure and take advantage of favorable pricing. Underlying investments can include individual equities, active and passive funds, and exchange traded funds (ETFs).  
  • Tactical Strategies seek to actively take advantage of opportunities to earn additional returns, or to limit losses during extended times of market stress.  Tactical strategies can provide a complete solution or be used to complement the other approaches. Tactical solutions provide an additional level of management and can add additional cost. Underlying investments can include individual equities, active and passive funds, and exchange traded funds (ETFs).  
  • Diversifying Strategies help manage equity and bond risk, particularly during times of steep market declines.  Bond alternatives, for example, may help smooth performance during changes in market trends, and 'normal' market volatility. Equity alternatives, in contrast, are designed to offset steep declines during times of market crises.  Underlying investments include funds and ETFs. 

Because each approach functions differently during various phases of the market cycle no one approach is always best. So let's take a look at how we combine these three approaches.  


 

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 Investments in securities do not offer a fix rate of return. Principal, yield and/or share price will fluctuate with changes in market conditions and, when sold or redeemed, you may receive more or less than originally invested.  No system or financial planning strategy can guarantee future results. 

Integrated Approaches is Next Level Investment Management 

In my experience, retail Advisors often offer limited investment strategies and expect their clients to similarly limit their expectations.  At Next Level we elevate the investment experience so that investors don't always have to compromise. We offer a broad range of strategies that can be integrated and coordinated to more completely personalize a portfolio. Where an integrated approach is desired, we combine underlying strategies strategically or tactically to meet personal expectations.  Strategic integration of approaches involves a static allocation of core, tactical, and alternative strategies in order to address the investors long term expectations. As expectations change the strategic allocation can be adjusted manually. Tactical integration, in contrast, involves an automatic and continuous reallocation between core, tactical, and alternative investment approaches. As market and risk conditions change the optimum mix of strategies changes, and we automatically reallocate the portfolio between core, tactical, and alternatives to accomodate specific phases of the market cycle. For example, during market corrections a tactically integrated portfolio may shift away from a passive core strategy towards a tactical limit loss approach. During a prolonged downturn (e.g. recession) the portfolio may then shift towards a limit loss strategy and/or away from equities or bonds towards alternative investments. Then, as the market recovers the tactically integrated portfolio may move away from alternatives and return to core and tactical.  The take away here is that we offer a variety of approaches that can be integrated in different ways depending upon how you want your portfolio to behave during different phases of the market cycle.  

Should I Change My Investment Approach?  

Periods of heightened market volatility help us fine tune portfolios. Consider the last few months of market turmoil and ask yourself, "do I perceive volatility as a threat or opportunity"?   If you perceive volatility as a threat then we may want to consider adding a limit loss strategy in your portfolio after the recovery.  If you perceive this market correction as an opportunity to 'buy low with less risk' then we may want to consider adding an enhanced return strategy during the correction. If, for any reason, you personally forecast a dyer economic period or exposure to great risk, then we ought to consider reallocating to alternatives and/or adding defensive capabilities to your equity exposure now.  

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