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Don’t Let Emotion Drive Your Portfolio Decisions

After discussing tactical investing as well as its impact on various investment types, including retirement savings in parts 1 and 2, Axos SVP Tracy Gallman and Meeder Investment’s CEO Bob Meeder conclude their talk with more on how to let facts guide investment decisions rather than feelings.

Q | Tracy Gallman

Tracy Gallman:In the environment you've seen over the past year with rising inflation or potentially entering into rising interest rates, there's been a lot of market volatility. How have you seen Meeder’s Investment Positioning System (discussed in part 1) identify opportunities for investors?

A | Bob Meeder

Bob Meeder: That’s a really fun question. Last year, in our tactical portfolios for the first half of the year, our model showed that reward was greater than risk. And so, clients were fully invested in the stock market. Then starting in about late July, we started to see a little deterioration in the pieces that make up the reward score, and it was primarily driven by factors in the longer-term model.

Valuation factors indicated the market was overvalued. Then our short-term model started to show increased risk levels, which caused us to continue to reduce our equity exposure. And the S&P 500 was continuing to move higher. But if you looked beneath the surface of the stock market to really see what was going on, there was a divergence going on. Most stocks were not participating in the advance, even though the S&P 500 Index was going up. Historically, when you see a narrowly led market with only a handful of market leaders and more stocks actually declining than advancing – that’s a warning sign to us. At the end of the year, we were about 30% in cash, moved from a hundred percent invested. And today, we're about 40% in cash.

Q | Tracy Gallman

TG: We are seeing a lot of clients considering taking their portfolios to cash, but I think a really hard item for investors to consider is when to go back in. How does Meeder consider when to bring investors back into the market?

A | Bob Meeder

BM: I think that's the biggest problem investors have. It's very easy for them to sell. It's easier than ever for them to sell. And to your point, how do they decide when to get back in? They don't have a process. It's typically emotional.

For us, our Meeder IPS system looks at valuation factors. It looks at macroeconomic factors and interest rates, what's going on in the interest rate environment, what's going on with the Fed and then trend and technical factors. As that starts to improve, we'll start to increase our exposure to the stock market. So, it's a very highly quantitative rules-based approach.

I've been in the business 38 years, and I know when I've made investment mistakes, it's typically because I got emotional. So, our approach uses a highly quantitative process to eliminate the emotion aspect that can creep into the decision-making processes.

Our approach uses a highly quantitative process to eliminate the emotion aspect that can creep into the decision-making processes.
— Bob Meeder

Q | Tracy Gallman

TG: How important is having a tactical approach to investors in overcoming this sort of human behavior issue and potentially managing their investment risk better?

A | Bob Meeder

BM: It helps investors reduce the possibility of getting emotional and making bad decisions. They know we’re a professional organization. We have 10 Chartered Financial Analysts, four Certified Financial Planners, three Chartered Market Technicians and a PhD who are always working on this. And (clients) know that the team is working every day to employ decision-making processes and making the best decisions so that they don't get caught up in that cycle of emotion.

The S&P averages 15% annual growth, but the average investor only averages 6% growth over that same time period. When you don't have the time, the knowledge, or the desire, you really need to turn it over to someone else. That's what a tactical strategy does. It helps minimize the ride so when things are looking bad, they don't say, I'm scared, I'm out.

Q | Tracy Gallman

TG: At Axos invest, we have our self-directed trading platform where investors can go and choose the investments they want to be in. But it's interesting for investors to think about potentially not trying to follow individual stocks, but getting those stocks through a mutual fund format, where they can get diversification with a professional manager and a very specific investment approach. Your tactical philosophy is represented in your Muirfield Mutual Fund. How was that fund designed?

A | Bob Meeder

BM: We have several different tactical strata, tactical funds that have different degrees of risk, but the Muirfield Fund incorporates the broadest sense of our tactical strategy. An investor can buy one mutual fund that will manage how much exposure they have to the market, how much exposure they should have to domestic stocks versus international, and which sectors to overweight and underweight. It also has a process for identifying the most attractive stocks that meet that overall theme. And that’s an all-in-one mutual fund.

Q | Tracy Gallman

TG: Is there a minimum amount required to access that fund?

A | Bob Meeder

BM: One share this morning (5/12/22) was $8.51.

Q | Tracy Gallman

TG: So, an entry of $9.

A | Bob Meeder

BM:Yes.

Q | Tracy Gallman

TG: So, in terms of fit, is this fund for an investor in the cumulation phase of their investing life, maybe a younger investor? Someone saving for retirement, or with maybe a longer-term goal in their life?

A | Bob Meeder

BM: I think it’s for an investor who has a risk tolerance that I would say is a moderate investor. They know that they may get emotional about when the markets get difficult. I think it's ideal for that investor.

However, if the investor is a very aggressive investor and they really know they can ride through the cycles and they want to capture all that upside and they can ride through the downside, then the fund may not be the right fund for them. It's really designed for that very conservative, moderate investor who has a long timeframe and wants a slightly more aggressive approach than investing in a traditional bond or a traditional balance fund or a bond fund.

Go back to check out part 1 of Tracy and Bob’s discussion about the value of tactical investing, then continue to part. 2, including how tactical investing works into a retirement strategy.

If you have questions about tactical investing or would like a demo of the Axos Invest Self-Directed Trading tools, reach out to a licensed Axos relationship manager. You can connect with one of our specialists by phone at 1-888-585-4965 or email us at [email protected].

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Meet Bob Meeder
and Tracy Gallman

Bob Meeder joined Meeder Investment Management in 1983, becoming President and CEO in 1995. Under his leadership, Bob has been instrumental in developing the firm’s tactical investment positioning system. Meeder's assets under management are over $25 billion, as of Dec. 2021.

Tracy Gallman has 30 years of experience in the financial services industry. Tracy previously served as Senior Vice President with LPL Financial and PFS Investments before overseeing all Axos Invest strategy and product development in 2021.

About Meeder Investment Management

Meeder Investment Management was founded in 1974. Located in Dublin, Ohio, Meeder has over 100 professionals serving the financial needs of individuals, corporations, and government entities, with over $25 billion in assets under management, advisement, and administration.

Meeder mutual funds are available now in the Axos Invest Self-Directed Trading platform.

Keep the Conversation Going

Check out Part 1 of Tracy and Bob’s discussion, about the value of tactical investing, and Part 2, including how tactical investing works into a retirement strategy.