Ben Barzideh and the team at Piershale Financial Group believe that missing out on some of the best days in the market offsets missing some of the worse days, and that is why they will not hesitate to pull their clients out of the market in times of volatility.
“We run a tactical investment strategy, meaning that we go in and out of the market at certain times,” said Barzideh, a wealth manager at the Barrington, Ill-based firm, explaining that when the market is good, they look for opportunities, but when there is a bad “storm,” they will get out to protect their portfolios.
Such an approach, known as the advance-and-protect strategy, is a risk reduction system that is popular with institutional investors, he said. The objective, as noted by Barzideh, is to capture growth when the market is rising and protect principal when the market is falling. Barzideh said Piershale Financial Group employs this active management strategy because it suits the firm’s client base, which is nearly all retirees or pre-retirees.
The traditional investment concept of diversifying and riding things out in good times or bad times is not prudent for retirees, Barzideh said. “When you are in retirement, you play by a different set of rules than when you are 30 and you are putting away money for retirement,” he said. “You have a finite window of time. So big market crashes can have a more devastating impact on a retiree.
“So, we find that by being trend followers, being in the stock market when our data shows things are doing well and there are certain times, every couple of years or three years, with our process, where it warrants getting completely out and this is one of those times,” he said.
The firm has rotated to 100% cash for the time being. He said they exited the market in late January, but then there was a couple of weeks where it looked like things were starting to recover and “we got the buy signal to dip our toes in for a little bit, so we put a small portion back in for a couple of weeks and then right before the Russian invasion happened that caused it to go down and we pulled it right back out and have been out since,” he said. The firm also pulled out of bonds, which he said he expects will recover in the next few months as Fed rate hikes set in.
Barzideh said when the firm's data shows that the market is doing well, which is most of the time, they may go much heavier than the typical 60/40 or 70/30 model and increase stocks to 100% during certain times of the year when they see an opportunity to help compensate for times when they are maybe too conservative.
He said when the firm is out of the market, it doesn't “freak out” if the market starts rising. “It’s kind of like the last 10 days or so when the market has been in a pretty nice rally from the bottom, we haven’t participated in that,” he said. “It’s too early to tell if this is a true rally and if the market is going to make new highs or if it’s going to kind of fizzle out and make newer lows.”
A lot will depend on the outcome of the Russian invasion of Ukraine and other variables, such as the economy and inflation, he said. And clients are understanding of the market timing approach because of those variables, he said. “We hardly had anybody call us for the last few days and say, ‘hey, how come we are not in it yet?’ If anything, over the last couple of weeks, we’ve had more clients call just to kind of make sure that we are not close to getting back in any time soon,” he said.
Barzideh noted that while the advance-and-protect strategy is not popular with retail financial advisors, it has its place and has proven to work for the retirees and those approaching retirement. “It really is a good solution for a retiree because they want to benefit from the market, they want to be in it when it’s doing well. But when there is an above-average amount of risk, they want to sleep better knowing that they are not completely exposed to what can happen in the market.”