Oak Brook, IL (PressExposure) July 29, 2009 -- The absolute return investment strategy can significantly outperform the stock market while reducing risk, providing smooth sailing toward financial security, veteran financial adviser Timothy Frisby writes in his blog
The absolute return strategy is an active management strategy that has one goal: profit, Frisby writes on his blog, [http://www.wealthcareconsultants.net].
He writes that the inflexibility and restrictions of most mutual funds mean that investment capital isnât properly protected against market fluctuations. In most cases, an index fund or a low cost ETF linked to the S&P 500 index would provide a more rewarding investment.
But investors can do better, Frisby writes.
âThink of the stock market as a large body of water, and your portfolio is your sailboat. You have a destination to achieve (financial security/independence/wealth) and you must sail your sailboat through the water, regardless of which way the wind (market trend/volatility) is blowingâ Frisby writes.
Absolute returnâs active management allows an investor to progress toward their destination, regardless of the changes in the stock market, according to Frisby. The absolute return philosophy doesnât make excuses for market trends, it alters the strategy to fit market conditions.
In contrast, Wall Street operates on what Frisby calls ârelative (non)performance,â charging investors management fees even while it is losing their money.
Absolute return management can reduce the risk of a âbuy and holdâ portfolio and significantly outperform the stock market, Frisby writes.
For example, Frisby cites these results from an absolute return program for the period from January 2006 through May. (This period includes the worst bear market since the Depression, he notes.)
The S&P 500 lost 27.5 percent during that period. But a conservative absolute return program gained 42.2 percent, while an aggressive program almost doubled, gained 93.5 percent.
And from January through May of this year, while the S&P 500 was off 1.29 percent, a conservative absolute return program gained 8.49 percent and an aggressive program gained 18.34 percent.
Frisby writes that current bear market will go down as the greatest bear market in history. While the vast majority of investors will lose most, if not all of their investments if they listen to Wall Street pundits, investors who take action can survive, thrive and recover.