There are many people who will tell you what to invest in, when to invest in it, and how you need to manage your portfolio. And a lot of financial strategists have some sort of technique behind their ideas. Chief Investment Officer Peter Matthews of PJMint.com is no different: he has a strategy, and it’s actually a new investment paradigm.
Doing your own investing
The reality is that a lot of people want to do their own investing… and they often do it poorly. Online opportunities abound, but without a strategy, even the best stocks won’t perform to their optimum level. Matthews estimates that even when the market is running at eight percent, the average independent investor only earns two percent annually. That’s a significant difference!
Other independent investors heed the advice that they read or hear and decide to diversify their investment portfolios and hold them over a long period of time. That’s good advice as far as it goes, but independent investors are far more likely then to watch stock prices closely and panic when they fall, selling at the lowest point (quite the opposite of the time-honored adage of “buy low, sell high”. And then they worry about not having the diversified portfolio that they’re supposed to have, so they jump back in without looking at the pattern of stocks and, too often, buying high.
Why not do like everyone else?
The real issues, contends Matthews, is that this approach (sometimes known as “buy-and-hold”) is at best passive. It waits. It doesn’t act. There’s no one who can predict the future of the markets, and being passive in the face of this unknown is problematic. Matthews even calls the passive approach “dangerous” and he suggests that a more active, tactical, and comprehensive investment strategy is one that will deliver better results with less stress.
The POD paradigm
This active, tactical approach is what Matthews calls the investment “pod,” in which the P stands for the passive buy-and-hold portfolio, the O stands for opportunistic tactical asset allocation (which in fact exposes you to best-performing assets and moving you away from those that are not performing as well), and the D stands for defensive risk management, a set of rules that automatically get rid of falling assets and moving the results into cash asserts until the ones that weren’t doing well improve substantially.
Matthews argues that this is the best way in fact to diversify a portfolio, not just looking at what the assets in the portfolio are, but in how they’re performing over time. This allows people to have better control over their investments (and therefore over their financial futures) by applying an approach that is systematic and strategic. By adding automation, the independent investor doesn’t have to stay strictly on top of the portfolio at every moment, but can rest assured that if something goes badly wrong, there’s a fail-safe in place.
In other words, it’s not just the assets that are diversified, it’s the strategy that’s diversified as well.
How this is the best strategy long-term
Most people, Matthews points out, invest only in passive long-term portfolios, knowing that eventually the markets will show a slow upward curve. But this three-pronged approach allows you to be less passive and more secure in where your money is and what it is doing. With the future consistently uncertain, having more control is obviously a better strategy than sitting back and letting it take its course. You get to select the correct allocation of assets across your different strategies so that you’re maintaining optimal levels at all times.
This new paradigm is bound to help you weather the storms of future market upheavals while still being able to take advantage of the slow curve of appreciating stocks. It keeps your investments safe while allowing your ability to participate in the market to remain intact.