Once I mentioned tactical moves for investment portfolios, some investors became excited to design a “Biden friendly” portfolio. Let’s take a step back—specifically to 2016 when I encountered a client who had a “Trump portfolio.” During a big change, like a presidential election, some financial professionals will package products that cater to the hype. This a gimmick, not a strategy.

First and foremost, investors should develop an overarching strategy according to their spending. I generally recommend using the Ten Year Rule, which allocates 10 years’ of spending needs to fixed-income investments. If you are well more than 10 years from retirement, your spending needs are likely minimal. You may have money earmarked for your child’s education or be saving for a vacation home, but the bulk of your assets are for retirement.

Next, I recommend investors use a bottom-up approach for allocating their equity investments, focusing on the fundamentals like financial strength, profitability, growth, and relative value. This can help you develop a sound portfolio that should be successful regardless of who is president. The success of your portfolio affects how soon you’ll be able to retire and what kind of lifestyle you will live. A strong investment strategy that balances risk and reward should allow you to achieve your long-term goals.

Tactical positions in a portfolio aim to take advantage of current economic conditions, politics, trends, etc. It is imperative that you understand that these are not speculative moves. If you want to buy Bitcoin or marijuana stocks, relegate those to a “Vegas Account.” This is an investment account that you can afford to lose 100% of your money—much like gambling in Las Vegas. Sure, you may hit it big, but you also could lose everything.

Tactical positions allow you to recognize opportunities for improvement without creating excess risk. They allow your strategy to be flexible, responding to shifting economic circumstances successfully. I know that sounds like it came from The Art of War—regardless, the sentiment is the same. You don’t want to ignore the current market/political/economic environment, but tactical positions should fit within your overarching strategy. These are not Hail Mary passes. These are well-researched opportunities that adhere to your investment criteria and are designed to add a specific benefit to your portfolio. Tactical positions can add risk; however, if you are only allocating 10 percent to 20 percent of your equity assets to a tactical investment, the risk can be smoothed out over time with diversification.

Now, looking at “Biden friendly” stocks, you might think green energy would be a good play as we look toward sustainable energy sources. However, it is also very likely that the big names like Exxon Mobil, Chevron, and Royal Dutch Petroleum are heavily investing in renewable energy as well. They are not going to sit on the sidelines allowing a start-up energy firm to take the lead. Yet, Energy has been the worst performing sector of the economy in the past year. Think about the inputs for other industries. Energy is used by other companies to keep the lights on in the warehouses and trucks on the road. If energy prices were to go up, the bottom line is other industries will be affected by the rising energy costs. Diversification is important to even out your risk.

While tactical moves can be beneficial to your portfolio, if a position is not working out the way you intended, taking money off the table and reducing your risk is also a tactical move.

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William G. Lako, Jr., CFP®, is an Executive in Residence at Kennesaw State University’s Coles College of Business and a principal at Henssler Financial and a co-host on Atlanta’s longest running, most respected financial talk radio show “Money Talks” airing Saturdays at 10 a.m. on AM 920 The Answer. Mr. Lako is a CERTIFIED FINANCIAL PLANNER™ professional.


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