Retirement investing is always a work in process.
The structure of your retirement account needs to reflect when you plan to retire, how much you have saved for retirement, other sources of income, and your retirement lifestyle.
Retirement investing starts with a basic growth objective when we are young with time for compounding. As we near our retirement years, preservation of capital and gains becomes more important. We don’t have time to lose 50% to a bear market and rebuild our principal -- too much of the market’s recovery is lost returning to break even.
In retirement, the goals of income and growth have to be balanced. On one hand, your portfolio needs to generate income to replace employment earnings. On the other, you still need growth to assure that you won’t outlast your money. Avoiding major drawdowns becomes even more important at this phase. With income being withdrawn on a regular basis, retirees often don’t have the leverage to recover from bear market losses.
Tango Capital Management’s active investment approach adapts portfolios to the changing objectives of retirement investing through investment selection and our focus on risk management.
In a traditional asset allocation approach, the investor’s defense against declining markets is to invest on non-correlated assets. When one is declining in value, the other is theoretically increasing, offsetting the impact of a bear market. In reality, this rarely works. In severe market declines, correlation between asset classes tends to increase as all classes move together – down. In rising markets, portfolio performance is handicapped by underperforming, non-correlated assets. Overall return is diminished.
Tango Capital Management’s focus on investing in the top stocks of outperforming sectors adapts the portfolio holdings to what is currently working in the market. We are not depending on historical relationships to achieve profits. This gives Tango portfolios the ability to adapt to opportunities in the market.
Risk management is a critical element of all Tango portfolios. Our clients never like to lose money, nor do we. While some element of risk will always be present, by identifying and selling losers early, we strive to limit downside risk to the portfolio. As portfolio objectives shift from growth to a blend of growth and capital preservation, additional risk management tools may be employed, such as hedging and the use of inverse funds in high risk environments. When our clients are in retirement, we look to dividend paying stocks and other investments that offer income plus the potential for increased valuations.