Passive
investing is uneducated and investors following this flawed approach are frustrated with lackluster results. The stock market hasn’t made any meaningful progress in 12 years! A buy-and-hold approach often turns into a buy-and-hope approach. Countless investors thought buying and holding technology stocks was the ticket to riches in the late 1990s. More recently, bank stocks were considered “keepers” for their dividends. Today, many banks not only discontinued dividend payments, but their long-term shareholders experienced massive capital loss.
In the 1990s, many investors, including many professionals, bought into a broad diversification strategy such as Modern Portfolio Theory. We call this approach “blind diversification” or the “pie-chart strategy”. Perhaps you’ve seen pie charts that carve out a piece of your portfolio to allocate among different asset classes (U.S. and foreign stocks, large cap and small cap stocks, commodities, REITs, etc.). The Institute believes such strategies are uneducated and counterproductive. What is the purpose of intentionally holding different asset classes that are designed to move in opposite directions? When one is rising, the other is falling… it all leads to mediocre investment results for you. During bear market years like 2008, all asset classes declined at the same time. What did diversification do for you in 2008?
Proactive strategies, such as our Proactive Asset Allocation Strategy (PAAS) and Four-Step Process for Making Confident Investment Decisions, are the only way to build your wealth while the U.S. stock market is stagnant. The market hasn’t made any meaningful progress in many years. Meanwhile, our PAAS 5 Model is up 1028.05% since inception (Jan 1, 1998). If you are already wealthy and trying to preserve your capital, passive diversification may be appropriate. However, if your aim is to build your wealth, our PAAS Model provides you focused diversification and indicators to know when to sell. Our 4-step decision process will help you manage your stock portfolio regardless of the market conditions you will encounter.
Active investing is not rocket science and doesn’t require you to dedicate endless hours on research. All you need is a sound framework to help you make proactive changes at the appropriate times. Our Proactive Asset Allocation Model (PAAS) tells you when to buy, what to own and, importantly, when to sell. The PAAS Model follows a disciplined indicator set.
In August 2008, the indicator set gave sell signals so the PAAS Model sold all investments, moving into a cash position. In 2008, the PAAS Model performance was down just 1% while the S&P 500 dropped 37%. In April 2009, the indicator set gave buy signals so the PAAS Model invested 100% into stocks. It is up 54.64% through March 31, 2010! The performance of the PAAS 5 Model is 1028.05% cumulative return (22.04% Annual Compounded Return) since the beginning of 1998.
Many investors that attempt to be active are getting their information from the wrong sources. Information from the media or Wall Street is either late or misleading, causing you to make reactive decisions…after significant market events already occur. Our proactive strategies will help you stay ahead of curve!