THE 3 STYLES OF MONEY MANAGEMENT WHICH IS RIGHT FOR YOU?

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1 THE 3 STYLES OF MONEY MANAGEMENT WHICH IS RIGHT FOR YOU? by Keith Springer The financial planning process can be confusing and difficult, especially in retirement or as you are getting close. Your days as a gunslinger investor are over, or at least they should be. At this point you need the proper investment platform that matches the retirement master plan you have created for you and your family. Read on to learn more.

2 TOO MANY PEOPLE THINK INVESTING IS JUST THROWING MONEY AT THE MARKET Some people buy the hot stocks like Apple because that s what they read about the most. While others invest in mutual funds, based on past performance while believing they are properly diversified because they own a bunch of different funds, with little regard to what the funds are actually buying, if they are leveraged or what their risk level is. Many people do their primary investing through their 401k, simply by throwing money at the market and hoping it goes up. Let me tell you, hope is not an investment strategy! At this point in your life, careful planning is essential and then employing all the proper investment management metrics to give you the best chance for success. You must understand what your Standard Deviation is. Standard Deviation - this is your risk level. Beta, which is your volatility relative to the market. What s your Sharpe Ratio percentage, which tells you how much return you are getting relative to the risk you are taking, and Alpha, which quantifies how much value is being added by whomever is managing your assets. These are the essential components used by the largest mutual funds, hedge funds and professional money managers to create the proper portfolio that manages risk and delivers returns. There are essentially 3 styles of money management: 1. Tactical Tactical or what I like to call Hands-on Tactical, is the most active, as the name suggest. This allows the manager freedom to move money around depending on where the opportunities lie. There are 6 asset classes: Stocks, Bonds, Commodities, Real Estate, International and Cash, and this style uses all 6 of them. Knowing which one to use at the proper time is as much an art as a science. Managers who did well during the last stock market crash would have been out of stocks and real estate at that time and invested in commodities and bonds. Another example could be whether to invest in bonds in today s investment climate. Many people think they must own bonds because they are retired, need income and some asset allocation software told them so. This could be a huge mistake as we have just concluded a multi year bull market in bonds and are probably entering a long-term bear market as interest rates appear almost certain to rise. 01

3 So my question is simple: why would you own bonds if you know rates are going up and your bonds will go down? Answer: You wouldn t! A tactical manager would avoid the sector until the prospects improve, instead finding alternatives that can reduce stock market risk while still generating income, without owning bonds, or any asset class that is out of favor. In addition, if a correction or crash is imminent, they can react quickly to get out of harm s way. Most other managers do not do this and mutual funds are generally not allowed to go to cash. A strategic manager would adjust the portfolio to take advantage of major trends. For instance, interest rates are likely to rise under a President Trump, so you must carefully consider the amount and type of bonds you want to own. In addition, small and mid-cap stocks should perform better because they stand to gain more under President Trump s tax reform proposals and deregulation agenda. The difference between Tactical and Strategic management styles in a nutshell is that a Strategic manager may not trade as frequently to realize short term gains when they are present. By not being quite as active, Strategic management can be an excellent lower cost alternative to tactical. 3. Passive 2. Strategic Passive investing is the buy-and-hold method, or what I like to call buy-and-hope! This is the most basic and most widely used type of asset management because most financial planners are not trained money managers. This style will give you lots of ups and downs which can also generating lots of headaches and sleepless nights. Many investors unknowingly have passively managed portfolios and only realize it after they have suffered big losses. Strategic investment management can also be an active investment management style, but not as reactive as the tactical approach. Within Strategic, the overall portfolio is built based on macroeconomic and broad market conditions. Transactions might occur less frequently and are generally prompted by cyclical changes. Finding the right investment style for you depends not only on your financial goals, but what appeals to your personal style. People often go with the lowest cost program, which can cost much more in the long run by not achieving their objectives and or sustaining large losses. 02

4 At Springer Financial Advisors, we create success using both the Tactical and Strategic management approach. I am not a fan of the passive buy-and-hope style. Price is usually the driving factor, as Strategic may cost a little less. Although, Hands-on Tactical usually pays for itself many times over in the long run. The choice is like buying new car where you get to pick the luxury amenities such as a nicer stereo, leather or fabric, a bigger engine etc. To learn more about our powerful, customized investment management program that manages risk and delivers returns, simply contact us today. As always, feel free to contact me with any comments or questions. Cheers -Keith (916) Which style you choose depends on your personal needs and desires. 03

5 ABOUT THE AUTHOR CHECK OUT KEITH SPRINGER S NEW BOOK! Keith Springer is the author of Surfing the Retirement Tsunami Your Guide to Staying Afloat and Retiring Comfortably and Facing Goliath: How to Triumph in the Dangerous Market Ahead He is also the host of Smart Money with Keith Springer on NewsRadio 1530 KFBK. Keith can be seen on CNBC, FOX Business, the Wall Street Journal, Fortune, CNN Money, and other news outlets. He s the President and Founder of Springer Financial Advisors in Sacramento, CA, an SEC Registered Investment Advisory Firm specializing in investment and retirement planning. Keith has been providing professional wealth management advice for over 30 years. All content is original material, solely owned and paid for by Springer Financial Advisors. Keith can be reached at (916) or Keith@KeithSpringer.com. Learn more at keithspringer.com 1 PM 6 AM SIGN UP FOR THE SMART MONEY NEWSLETTER TODAY AT KEITHSPRINGER.COM 04