Book Appointment

Buy & Hold vs Tactical - Which Is Right For You?

Season #2

This week we're going to dive into the age old question of buy and hold versus tactical investing. Which is right for you in retirement? We'll find out on this episode of Label On Fire.

What is Tactical Investing

At the heart of our discussion, we must understand what tactical investing involves. It spans an array of strategies, including market timing, purchasing specific stocks at opportune moments, and selling when they seem to decline. The term "tactical" denotes a dynamic, hands-on approach, contrary to passive investing.

A common reference point here is the legendary Warren Buffet, a purported champion of buy and hold investing. He is known for buying companies and keeping them for what seems like an eternity. However, it's crucial to recognize that his strategy isn't as passive as it might seem. He actively selects what to buy, challenging the common conception of this investment philosophy.

When we speak of tactical and buy and hold, we essentially refer to the difference between purchasing an index fund and individually selecting stocks to buy or sell.

Buy & Hold Investing

On the other side of the equation, we have the buy and hold strategy. The premise here is based on uncertainty. The average investor is not Warren Buffet; we don't necessarily know which companies will prove to be the next Apple or Uber. So, rather than attempting to identify the future stars, the buy and hold strategy involves buying a range of stocks, betting on the likelihood of some being successful or seeking to profit from the sector or economy's growth. Through diversification, we are able to crowd source our stock selection and win over the long run.

Which is Better for Retirement

Now, you might wonder which of these strategies, tactical or buy and hold, is right for you. This depends greatly on your individual circumstances and personal preferences.

Key to this decision is self-questioning. Your investment strategy will look different if you're working versus when you're retired. As we've discussed previously, your strategy should ensure you're making the best decisions for yourself and your loved ones while minimizing the impact of stock market and political fluctuations.

Given that most people will have a significant portion of their wealth tied to the stock market, it's important to find a way to grow your assets and ensure you can withdraw your money when necessary without suffering from a market downturn.

Despite the common debate framing buy and hold and tactical investing as diametrically opposed strategies, it's not a matter of right and wrong. There are situations where one may be more suitable than the other, and the most effective strategy may well incorporate elements of both.

For instance, using a tactical approach can help you avoid withdrawing your funds at an all-time low, but timing the market is not a foolproof tactic. Similarly, buy and hold may be beneficial in that we can't always accurately time the market, but it's crucial to hold on to capture growth over time.

The Real Question...

The real question to ask ourselves is not "buy and hold or tactical?" but "how can I implement elements of both strategies in my retirement plan to ensure a sustainable lifestyle?" Ultimately, none of us want to suffer the market's lowest lows, and none of us want the anxiety that comes with wondering if we've executed a tactical strategy poorly. Thus, it becomes crucial to understand the balance and how best to blend these strategies to fund our lifestyle.

Which Strategy Does the 321 Plan Use

At Yields4U, our 321 plan does incorporate specific triggers, or checkpoints, that initiate particular actions based on what happens in the markets, the economy, or our life.

The aim is to exploit advantageous circumstances or shield ourselves from potential pitfalls through per-determined action, hence providing a strategic safety net.

Moreover, the idea of "time banding," or segregating money into different "buckets" based on when you will need it, automatically layers in an element of both protection and a blend of buy and hold and tactical strategies.

Does The Strategy Change In Retirement

In our working years, a simple strategy would be to buy the S&P 500 and hold it for the next 20 years. In the long run, this approach will likely generate substantial returns. However, this approach doesn't work in retirement when you need immediate access to our money.

But if we segment the funds? Say we set aside a portion of money that we are certain we won't need for at least five to ten years. That money can be invested in the stock market and held without worry, using the buy and hold strategy.

Conversely, if there's a portion of money that will be required for the coming year's expenses, it's unwise to invest that in something as volatile as the S&P 500. After all, needing to sell it regularly to cover living costs essentially equates to market timing.

In such instances, a tactical approach that takes on less risk becomes necessary. Perhaps we look at short-term Certificates of Deposit (CDs), treasuries, or money market accounts. We require an asset class that won't plummet to zero, something that won't potentially drop 20% on the very day you need to liquidate it. Herein lies the value of tactical investing. This blend of strategies is not just sound, it's necessary for long-term financial stability in retirement.

It Isn't All About The Money!

As I've often emphasized, it's vital to recognize the emotional aspect of financial planning, particularly for retirees. When a carefully devised plan veers off course, which can certainly happen, it's my role to be both a counselor and a guide, realigning the retiree's strategy while providing emotional support and reassurance.

The key to this process often involves refocusing on the fundamental purpose of money. Money, in and of itself, isn't the end goal. Most people don't strive for a particular numeric figure in their accounts. What they genuinely desire is to maintain a certain lifestyle, one that allows them to live their retirement years in comfort, without worrying about every purchase they make or every price tag they see. They envision a lifestyle where they can provide for their grandchildren generously, or take vacations without financial stress.

I strive to keep this vision in focus, mapping out their financial strategies to facilitate their desired lifestyle. A client might express a need for $70,000 a year for a comfortable living. My approach would be to plan for $70,000, while simultaneously examining the possibilities for an even better lifestyle with a $90,000 or $100,000 annual budget.

The ultimate outcome of the planning process can be quite binary: either they have enough money to sustain their preferred lifestyle, or they don't. But there's also a gray area in between where they might have to embrace more risk for the desired lifestyle, and that's where the emotional aspect comes in.

Some people recoil at the idea of taking on more risk, fearing sleepless nights worrying about their investments. They would rather curtail their spending than invite such anxiety. Others, however, are more accepting of risk. They trust my management skills and are content to let me handle the nitty-gritty of their financial management, as long as they can continue to enjoy their lifestyle. The human element, with all its complexities, is what makes my job as a retirement planner both challenging and incredibly rewarding.

Get A Free Retirement & Tax SWOT Analysis

Let us help you take control of your financial future and ensure that you are making the strongest possible decisions today, tomorrow, and long into the future. We'll take a look at your retirement plan and identify we'll look for what you're doing, great, what your weaknesses are, what your opportunities are.

Do you have opportunities to reduce your taxes in retirement, maximize your income? What are the things that if we were your advisor, would kick us up at night? Whether it's market risks, whether it's future tax acts, whether it's market volatility, whether it's inflation, we're gonna look at it all as part of our analysis.

We'll go through it and we'll discuss all the questions that you've had as part of this class. We'll figure it out. We'll help you figure out how to apply this information into your life.

Step 1: 15-Minute Meet & Greet

In our first meeting, we will get to know each other. We will briefly discuss your financial situation and goals and see if the Yields4U team is the right fit for your financial needs.

Step 2: Upload Your Files

You upload all the documents we need into our secure cloud storage, and then we will get on a quick call to make sure that we have everything we need in order to do our analysis. (Feel free to blank out any personal information.)

Step #3: Review Your Personal Action Plan

Your plan is going to include looking at your income and projecting it out over the next 20, 30, 40 years in retirement and forecasting what your income and taxes are going to be. Included in the plan will be:

  • Ways for you to minimize taxes in retirement through Roth conversions, Tax-Loss Harvesting, Tax-Timing, and other methods.
  • How To DE-RISK your portfolio WITHOUT locking in losses
  • Your Retirement & SWOT analysis: we will identify your Strengths, Weaknesses, Opportunities, and Threats to your financial security!
  • Your Personalized Action Plan!

At the end of the process, you will have a written action plan you can use to help you save money on taxes, protect your retirement, and ensure you don't run out of money in retirement.

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