- Investment

Absolute Return Investing – Fixing the 3 Biggest Reasons Why Traditional Investments Lose Money

How have your investments been doing over the last year or two? Probably not so well. Would you like a way to prevent a repeat performance? Read on to find out how the absolute return approach to investing can help you grow your money quickly — yet safely.

There are three reasons why people lose money in the stock market, all of which are reduced or eliminated by absolute return investing: Emotional decisions, mutual funds, and the buy & hold approach to investing. Fortunately, the absolute return investing approach has the perfect fix for all three of them.

1) Emotional Decisions

Our gut may be reasonably good at telling us whom we should fall in love with. But it’s not at all good at telling us which stocks to pick. Or when to buy and when to sell.

Absolute return investing takes the emotions out of the decision-making process. A sophisticated computer, fed with all the right programs and analytics software — and all the data it needs — will make the decisions for you.

2) Mutual Funds

Mutual funds seem so easy. You just pick some good ones, put them in your portfolio, and then you keep your fingers crossed. However, all that ease comes with a big price tag. First, there are the fees that will be deducted from any gains — and will still be deducted from your principal even when the funds lose money.

In addition, most funds are pitiful underperformers even as compared to their very own benchmarks. That’s because even though they probably contain a few good stocks, they also contain a lot of clunkers.

Fortunately, absolute return investing will eliminate the clunkers from your portfolio. Stocks are selected for high performance under hundreds of criteria — and if any of them should stop performing well, they’re dropped from the portfolio.

3) Buy & Hold

It sounds so noble: Buy and hold! Don’t be swayed by the scary gyrations of the market! Hang in there! Show some courage and faith!

Ouch! That’s how a huge amount of money was lost over the last couple of years. The problem? Most people wouldn’t know when to sell if they tried.

The absolute return investing approach, however, hinges on making exactly those decisions, and making them correctly. Sophisticated computer models analyze numerous indicators and can thus predict the likelihood of a recession.

There are no guessing games involved when it comes to deciding whether it’s a good idea to stay in the stock market or not. And neither will there be guessing games about when it’s time to dive back in. In the meantime, the money is held in cash, ready to be deployed again as soon as it’s safe.

Where can you find absolute return investing? Find a financial advisor who uses it as his or her main approach. Be sure to ask your prospective advisors about their results as well. If they truly work the model, their results should be superior, and they’ll be proud to show them to you. If they’re trying to hide behind “confidentiality,” run the other way.

You should also ask them how they’ll get paid. If they work on commission, they won’t be working for you, and their recommendations may not be in your best interest. Instead, look for a fee-only financial advisor who uses the absolute return investment model and won’t try to push mutual funds.