Welcome to How to Retire On Time, a show that answers your retirement questions. We're here to move past that oversimplified advice you've heard hundreds of times. Instead, we're we're gonna get into the nitty gritty here. Have some fun. As always, text your questions to (913) 363-1234, and remember, this is just a show, not financial advice.

David, what do we got today?

Hey, Mike. What's your favorite strategy or method for managing a portfolio?

So I was raised in the idea that advisers have to be smart or smarter than the market. I was raised in the industry that we had to have fancy models and systems to always outperform the market, and always blah blah blah.

Can you see a bit of a slant there?

Is that even possible to always People do it.

Oh, yeah. It's very rare, and the reality is those models that continue to outperform the market year over year, it's a closed end fund. They're not taking new investors. They don't want more money. They don't wanna delude what makes it work.

Oh. So here's my sobering decade of research boiled down to a three minute sound bite.

Alright.

I personally believe that no one should do one strategy, but you should diversify your assets by strategies, not investments. So they say diversify your assets. You buy the S and P. You buy the Nasdaq. You buy the Russell.

You buy the Dow Jones. You buy the total market, and through diversification, you've derisked yourself. So you might have less growth potential, but you've got less downside risk. And maybe you add some bond funds in there for continued diversification. But that's not really diversifying strategy.

That's one strategy with a bunch of different types of investments, and that's the traditional thought. The reality is there's kind of a spectrum here. So when you think of how to manage your money, you've got active management, and you've got passive management. Which is better? Who's to say?

Some years, active management kills it. Other years, passive management was the better option because you've got whipsaw. Whipsaw is when the market's trending one way and then turn. So they're going down and immediately pop back up, or they're going up and they just fall off a cliff. That's tough for active managers.

Great for passive managers who can just ride through those sharp turns.

And active managers are constantly

Constantly trading. If I were to define it, trading is short term time horizons. So a lot of churn, not churn in like the negative sense of like, oh, we're just trying to create fees or whatever. It's just there's active movement in the trading. And then you've got passive, which is you buy, and then let it sit for long term.

That's investing. Yeah. K? So you've got active and passive, and who's to say which is better? And then you've got narrow.

So narrow is think stocks. So very focused. And then you've got broad, think funds, ETFs, indexes. Okay? So after a lot of research and having been brought up in active management with very laser focused purchasing, I've seen it work really, really well.

I know firsthand active management can work really well, but it doesn't always. And so that's where this idea of diversify by strategy really came to fruition. And here's my opinion. You've got passive and broad. Those are index funds.

I am in harmony with the idea that most people should probably have a buy and hold strategy of buying an index or two. S and P 500, the Russell two thousand, whatever is right for you, but buying a couple of index funds and just having a nice base of buy and hold to ride through the unexpected volatility or the sharp turns that you just can't predict. If one person can post on whatever social media platform and it shifts the markets in an instant, that's tough to predict.

Right.

So Biden holding an index to me makes sense as a part of the portfolio.

Okay. Yes.

Then the other part on the passive side is to overweight your portfolio with good quality companies. Do you think all 500 companies in the S and P 500 are winners? Just absolute killing it.

I think we would be astonished to know how many of those 500 are actually sort

of Less than half. Less than half are really good. And then you've got the Russell 2,000. You think 2,000 are really just killing it? I mean, just knockout returns.

No.

So

if you understand fundamental analysis and buying good high quality companies, high quality can be defined in a couple of different ways, but you overweight your indexes with a couple of companies that are really good, you've got yourself a competitive advantage. Now notice the more focused concentration on those companies. You've increased your risk by traditional definitions, but at the same time, you've got more growth potential. So if you're wise about it, if you've done the due diligence, that's a really interesting way to take indexes, overweight it to something I mean, do your own research at home. Take the S and P 500, and then just add a boring good tech company like Apple or Microsoft or whoever.

Yeah. Put Amazon in there. I don't care. A company you've heard about. Like, it's a big popular company that seems to do well.

And just watch if you put 20% in that one company, and then you've got your diversified index, and compare the returns. Now past performance is not indicative of future returns, but it makes a very interesting case study to consider. Now should you hold those forever? No. You'll be mindful and make adjustments along the way.

Even Warren Buffett will trade. But that's the kind of the foundation. And then on the active side, I think momentum makes sense. So momentum, I define as you've got funds that are sector or industry specific. So you can go into AI or electricity or utilities or consumer staples, but you're overweight to where the money is being made.

Bond funds, if markets are crashing, bond funds are taken off, maybe you buy a bond fund ETF, whatever it is. But you're overweighting on a broad standpoint as opposed to individual stocks. And then the last quadrant here is called absolute return. Absolute return doesn't mean guaranteed return. It means it's reference to absolute return theory.

Absolute return theory suggests that we don't care what the markets are doing. What's the best place to put my money now for a shorter term period of time? So typically, that's buying a stock for a two week to two month period of time with the intention of selling it once the breakout finishes.

Okay. So absolute return is almost always very short term holding and

move up. That has the highest risk, but the highest growth potential.

Uh-huh.

The index funds buy and hold as lower risk compared to the other options, but lower growth potential. And so if you diversify by strategies, and it's very deliberate, I think that's a more compelling way to manage a portfolio as opposed to saying, well, I'm a dividends only investor. Well, works in some years, not so much in other years, or I'm a buy and hold kind of person. Well, that works in some years, but not so much in other years. That's all the time we've got for the show today.

If you enjoyed the show, consider subscribing to it wherever you get your podcasts. Just search for how to retire on time. Discover if your portfolio is built to weather flat market cycles or if you're missing tax minimization opportunities that you may not even know exist. Explore strategies that may be able to help you lower your overall risk while potentially increasing your overall growth and lifestyle flexibility. This is not your ordinary financial analysis.

Learn more about Your Wealth Analysis and what it could do for you regardless of your age, asset, or target retirement date, go to www.yourwealthanalysis.com today to learn more and get started.