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Active Management References

PLEASE REVIEW IMPORTANT DISCLOSURE INFORMATION SET FORTH IN THE DISCLOSURES SECTION OF THIS WEBSITE.

When you have been in business as long as Spectrum Financial, and advocated active management throughout that time, you’ve heard every argument there is about why active management does work. What you don’t hear very often is why it does work.

The following are some articles we’ve enjoyed reading that we hope will add to your understanding and appreciation of active management and how it impacts risk and performance and helps investors stay with the financial markets for the long run. If you’ve encountered articles you believe should be added to our collection, please email Spectrum.

Beating Buy and Hold - The most common argument against active management is that investors will miss the best days of the market and see their returns suffer dramatically. But before you buy this argument, you should look at the flip side...

Using Active Management -  What would happen if you were invested in the stock market primarily when prices were rising and were safely positioned in a money market fund when prices experienced substantial declines... 

 

 

 

 

 

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The Mathematics of Gains and Losses

When it comes to accumulating assets one of the most important rules is to limit your losses. With a buy-and-hold portfolio, many investors don’t realize they will spend nearly 2/3s of the time they are invested in the market sitting out declines and then waiting for their portfolio to return to breakeven. Part of the reason losses are so painful is that it’s a lot harder to make up lost ground than you may realize.

If the
DECLINE
is

It takes the following GAIN to break even
-25%
+33%
-33%
+50%
-50%
+100%
-75%
+300%
-90%
+900%

The S&P 500 Index has experienced bear markets on average once every five years. The average bear market, not counting the bear markets of 1929 and 2000, has lasted a little over a year and it has taken nearly three more years to return to the index’s prior highs. Active management’s goal is to minimize the impact of down markets and give you a chance to build equity when the market turns back up, not spend gains just trying to get back to breakeven.