Top Two Retirement-Plan Advice Tools

Given weak returns over the last 13 years, it's worth considering technical analysis as a guide to clients' “offensive” and “defensive” stock-market maneuvers.

This blog post is the second entry in a series of educational articles that outline a method to manage individual retirement plan participant accounts. You can find the first in the series here

You should consider two core investment management tools.  These tools answer the two most important investment management questions continually faced by individual company retirement-plan participants.

Up or Down?

The first tool is the answer to the most basic stock market investing question.  That question is of course, “Is the stock market going up or is the stock market going down?” The answer to this investment management question is at the top of the list of each individual retirement plan participant I meet with.

Too many professional investment advisors have relied on the stock market to always go up over the “long term.”  The lack of investment returns over the last 10 years has not deterred investment advisors from their standard course of investment management tactics. “Buy-and-hold,” “asset allocation,” and “diversification” have not somehow magically improved long-term investment results.

The last 13 years have not provided a successful investment outcome for many individual company retirement-plan participants.  For that reason, I have relied on technical analysis to guide my client’s “offensive” and “defensive” stock market risk-management game plan.

There have been short periods of a low-risk stock market environment.  During those periods technical analysis has provided my individual retirement plan advice clients with the confidence to attempt to “make money.”  My clients know that they can invest in the best performing mutual funds in their company retirement plan menu with reasonable confidence.

Conversely, technical analysis has alerted my clients to periods of high stock market risk.  During those periods the stock market has tried to “take money away.” 

Stop losses have successfully acted to preserve a great deal of the principal account value in my client’s individual retirement plan accounts over the last few years.

My new individual retirement-plan advice clients are able to sell the underperforming mutual funds they currently own using a stop loss strategy.  Their retirement-plan account principal is then made available for reinvestment into better-performing retirement plan mutual fund options.

When the stock market environment has improved, my clients have owned better mutual funds and enjoyed better investment returns.

What Should I Buy?

-The second investment=management tool answers another age-old stock market investing question. That question is, “If the stock market is going up, then what should I buy?”

The best answer to this second investment-management question is found in the concept of relative-strength analysis.

I rank each mutual fund I the company retirement plan menu by a relative-strength score.  This score incorporates both the short-term and long-term investment performance of each individual mutual fund, peer group of mutual funds, and mutual fund asset class.

This ranking makes clear to my individual company retirement plan participants “what should I buy” in an “offensive” stock market environment.

It also becomes clear to my retirement-plan advice clients which mutual funds to avoid during a stock market upswing.

The money-market balance raised by selling off the underperforming mutual funds in the early stages of a stock market decline comes in handy. When there are much better mutual funds available on the company retirement plan menu to invest in, a rebalancing of the company retirement-plan account makes sense. My retirement-plan advice clients understand that.

Individual company retirement-plan participants want a logical and straightforward stock market risk-management and tactical asset allocation game plan. 

The two primary investment management tools I provide help my clients understand “when to buy” and “what to buy.”

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Ric Lager is founder of Lager & Company, Inc, co-creator of the “No More Pies” investment series for financial advisors and author of “Forget the Pie: Recipe for a Healthier 401(k).”

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