Major long-term loss can occur during a sustained market downtrend. This causes not only a loss of previous gains, but an issue of just getting back to even. A 50% loss requires a 100% gain just to get back to where you started. You must be able to move into the right investments or exit the market completely during a long downturn. This helps to preserve growth and protect capital for future opportunities.
Tactical investment management’s objective is to be positioned in the right investments at the right time. Staying in harmony with market trends can protect assets from being locked into poorly performing investments as conditions change. Exact highs and lows cannot be predicted, but once a trend is identified assets can be positioned accordingly. This also includes being prepared to exit the market completely when appropriate.
Used in this way, protect means to always strive to guard against major long-term loss, but not short-term fluctuations, by moving to cash or cash equivalents during major bear markets. However, there is no assurance that anyone can accurately predict or take action in moving to cash at the correct time. Although tactical management growth strategies should strive to protect capital while still seeking growth, there are no guarantees for future results.
In times of great uncertainty and volatility, often the best choice is to be out of the market completely and positioned in cash. It is necessary to have cash available when market opportunities occur, such as when a long-term downtrend has ended and new market direction is confirmed. By following the first criterion, previous growth can be safeguarded and provide cash to take advantage of market opportunities.
Just as important as knowing when to invest, is knowing what to invest in. Being aware of which sectors offer solid opportunity and when to establish a position in them is critical.
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