Brexit has brought about a new level of stock market investment risk. Investors are asking: Is it possible to minimize risk in the stock market in these kinds of markets?
I believe that the answer is definitely “yes”. To understand why I say this, you will have to get away from traditional ways of thinking.
There are two ways to effectively minimize stock risk: with buy and hold investing and active investment management.
Buy and Hold Investing
With a buy and hold investing approach, I found that the best way to lower stock market risk over time is to invest in selective SECTORS by using no-load sector Exchange-Traded Funds (ETFs) or no-load sector mutual funds. Many traditional mutual funds are invested in sectors that are inherently higher risk with too much volatility. We believe a more targeted approach with sectors that have historically had more consistent performance with lower volatility is an excellent way to minimize stock market risk.
I openly publish the real-time performance of my buy and hold strategy on my website. I use an outside independent third party provider to track that performance – and to compare it to the S&P 500 Index. Click here to view it.
Active Investment Management
With active investment management, my research revealed that it is definitely possible to minimize stock market risk while protecting stock market gains at certain times – and then be more invested in the market at other times. However, it requires that the investor move away from traditional thinking. It is clear to me that the best way to minimize stock market risk is to have a mathematical formula that has the ability to calculate a change in asset classes (stock type investments, bonds, money market funds, real estate, etc.) from time to time.
The mathematical methodology I use moves from equity-based, no-load mutual funds (which do not pay commissions) to a money market fund when risk tends to enter the market. The approach I use seeks to anticipate these moves so we can potentially reallocate before a downturn.. I would quickly add though that it is not perfect and no formula or methodology can actually anticipate losses or gains, but over time I believe this type of disciplined approach can offer consistent returns with a lower risk profile.
I also publish information on my active investment management strategies and their real-time performance on my website. This real-time performance is compared to the S&P 500 Index. Click here to view it.
Do not listen to those who say that it is not possible to minimize stock market risk without buying bond funds. Those statements are just opinions of investment advisors who are stuck in older/traditional strategies or who have not done enough research on the subject. Old approaches are just not meeting the needs of many investors today.