Date: June 24, 2024

Heritage Capital Uses Active Management to Help Reduce Investing Anxieties

Are you worried about the potential for market turbulence as we approach the end of the year? If so, you’re not alone. Millions of Americans share that concern due to inflation, a national debt that exceeds $34 trillion, unsettled global conditions, and an election year. 

You want to lower your concern level and be positioned to take advantage of buying opportunities in case the market overreacts.

This is the role of active investment management during turbulent market conditions. 

  1. You may need a flexible solution for volatile market conditions
  2. Managing risk is the number one priority in a down market
  3. Using a buying reserve that can take advantage of mispriced securities
  4. Shifting investments between different asset classes, sectors, and/or geographic regions
  5. This should be a data-driven process that identifies buying opportunities
  6. Minimize the potential for emotion-driven investment decisions
  7. Build a portfolio that has the potential to outperform the market

Heritage Capital uses active investment management to help protect your portfolio during excessive market volatility. Our team adjusts your investment allocations to be more conservative, emphasizes risk management, and closely monitors market direction. 

In general, securities prices are lower in down markets. By spotting and taking advantage of higher-quality buying opportunities, our twin goals are to protect the principal and position your portfolio for future performance.

Dynamic Asset Allocation

Dynamic asset allocation is a strategy in which you use a mix of different asset classes (stocks, bonds, cash equivalents)in your portfolio, which can be adjusted based on anticipated future market conditions. 

Unlike static asset allocation models, where the asset mix is set regardless of market conditions, dynamic allocation is more responsive to global events.

For example, during periods of market volatility, your New Haven financial advisor might reduce exposure to stocks and increase your holdings in short/intermediate bonds or cash. This allocation change helps protect your portfolio from large losses during unstable markets. 

Conversely, when the market grows, your financial advisor may increase your stock allocations for improved future performance.

You have a portfolio with 60% stocks and 40% bonds. In volatile markets, a dynamic asset allocation approach might be to reduce stocks to 40% and increase bonds to 60%. These allocations may be maintained until the markets exhibit signs of growth. 

This allocation helps provide a more stable cushion in down markets. Once the markets stabilize, the allocations revert to the norm during more stable market conditions.

This flexible asset allocation strategy helps manage risk during unpredictable market conditions. The goal is to produce competitive returns while reducing the risk of potential losses.


Watch our founder, Paul Schatz, discuss inflation and how it can impact your comfortable retirement goal. 


Prioritizing Risk Management

A prudent risk management strategy is critical for investors approaching retirement or recently retiring. Preservation of capital becomes a priority. Positioning your portfolio for future growth when prices are lower becomes another one.

Connecticut based financial advisors, like Heritage Capital, use various investments to preserve the value of your portfolio.

  • Hedging is one strategy that can help. It utilizes an investment strategy to offset potential losses. For example, if you own stocks, you might also buy options that go up in value when those stocks go down. This way, your overall losses are reduced during a bear market.
  • Derivatives are another tool in the risk management toolkit. These financial instruments derive their value from underlying assets like stocks or bonds. Your investment advisor can use derivatives to lock in prices or gains, giving your investments a buffer against volatile market conditions.

Bottom line: These are just two risk management strategies that can cushion your portfolio against the potential for significant losses. Inevitably, the markets go up and down. Strategies like these can be the difference between a nominal setback and significant losses that require changes in your lifestyle.

Watch our short video on understanding Social Security benefits.


In-Depth Market Analysis and Research

Investment decisions based on intuition aren’t the best way to manage your money, especially retirement assets that must last a lifetime. That’s why the team at Heritage Capital relies on data, market research and analysis when investing your assets.

You need a way to understand what we are doing and why. Plus, a working knowledge of the markets, why they go up and down, and how that can benefit your situation. Our process helps you make informed decisions. Plus, we replace emotion-backed decisions with disciplined, data driven decisions that help you pursue your financial goals. 

When markets are turbulent, emotions tied to fear of loss tend to run high. The consequences may be emotional decisions that undermine your future results. Having a well-researched strategy helps you stay focused on the long-term consequences of your decisions.

For example, during the COVID-19 pandemic, markets experienced extreme volatility for a relatively short period. Investors and their financial advisors who relied on quantitative research may have flourished when they invested in energy, healthcare, and technology. There was a silver lining for the COVID crisis if investors made disciplined, data-driven decisions.

While many investors were panicked into selling, Heritage Capital identified that working remotely would boost demand for cloud computing and cybersecurity services. We recommend that our clients invest in companies that support remote work conditions. As a result, many of our clients saw significant gains despite the overall market volatility in 2020.

Active Monitoring and Adjustments

Think of active investing, monitoring, and adjustments as a weather app that updates you when stormy conditions are about to occur.

You may have a well-diversified portfolio that includes stocks, bonds, and alternative asset classes, such as real estate. When the market starts delivering big swings in value, it should be viewed as an investment opportunity. For example, big healthy stores sell at big discounts—never to be seen again for a long time. 

If you and your Connecticut based financial advisor do not manage these changes regularly, you could find that your portfolio is no longer aligned with your goals and risk tolerance.

Worst yet, if you are nearing retirement and the stock market suddenly drops, you might face some less-than-desirable alternatives: Deferred retirement date, reduced standard of living, or part-time work.

By actively monitoring and adjusting your portfolio, you can shift assets from more volatile stocks to more stable bonds, thereby preserving the assets you will depend on for your retirement years.

Customized Investment Strategies

At Heritage Capital, we recognize that our clients have unique goals and risk tolerances. We believe in creating highly personalized investment strategies to meet their needs. This personalized approach ensures that defensive measures are available to align your financial objectives and risk preferences.

This becomes increasingly important as you approach retirement. Here’s why:

  1. As you approach retirement, your risk tolerance typically decreases. A custom retirement plan allows you to adjust your portfolio to reduce exposure to higher-risk investments, ensuring your nest egg is more protected. For example, shifting from a more aggressive stock portfolio to a mix of bonds and blue-chip stocks can provide more stability.
  2. Your investment strategy should align with your income needs. There are few during your working years. However, a frequent strategy is a 4% distribution rate during early retirement. We also provide customized strategies that help ensure you have a steady income stream throughout your retirement years.

For instance, incorporating dividend-paying stocks or low cost, no commission annuities can provide regular payouts to cover living expenses.

  1. Different investment vehicles come with varying tax consequences. A personalized approach can optimize your investments to minimize tax burdens. For example, a tax-advantaged account like a Roth IRA can help you withdraw money tax-free during retirement.
  2. A disciplined strategy can prevent panic selling and avoid impulsive decision-making during market downturns. A plan that accounts for market volatility, such as a diversified portfolio with non-correlated assets like real estate or commodities, can help you weather the inevitable storms.

Two case studies illustrate our disciplined decision-making.

  • John, a 60-year-old nearing retirement, worked with Heritage Capital to shift his portfolio from 80% stocks and 20% bonds to a more balanced 50% stocks, 40% bonds, and 10% cash equivalents. This change helped stabilize his investments and reduce the impact of market volatility on his savings.
  • Mary, who plans to retire in five years, included dividend-paying stocks, convertibles, REITs, and municipal bonds in her taxable and tax-deferred accounts. These more conservative investments helped stabilize her after-tax returns, giving her a solidfoundation for planning her transition to retirement.

Ready to learn more about our active investment strategies? Connect with us today.

plan a bulletproof retirement


Paul Schatz, President, Heritage Capital