The Best Investment Strategy May Protect Investors From Themselves

Ask most people what threatens their retirement, and they will point to the market: a crash, a recession or a prolonged downturn. Those risks are real.

But one of the greatest threats to long-term investment results often does not appear on a market chart: investor behavior.

Human nature can lead investors to buy when enthusiasm is high and sell when fear takes over. Under pressure, a reaction can feel like a strategy. Yet decisions driven by fear or greed can quietly undermine years of careful planning.

A strong investment plan should account for market and mood swings, rather than depending on someone remaining perfectly calm on the worst day of the market cycle. It should include a deliberate process designed to keep short-term emotion from taking control of long-term decisions. 

Why Emotion Can Disrupt a Good Plan

Rising markets can encourage investors to take more risk than intended. During downturns, selling can feel safe, even when it locks in losses or derails a long-term strategy.

Fear, anxiety, and impulsiveness are at the essence of humanity and investors shouldn’t make it a goal to work against those emotions – instead, they need a plan that does not rely on perfect emotional control.

Creating Discipline Before Volatility Arrives

A disciplined process may include a defined asset allocation, regular rebalancing, guidelines for changing risk exposure, and conversations with a financial advisor.

The purpose of these guardrails is not to predict exactly what the market will do next. It is to reduce the temptation to make major decisions based on headlines, recent performance, or temporary fear.

Rules-based investment strategies can also play a role. For example, DunhamDC, a strategy from Dunham & Associates Investment Counsel, uses an algorithm known as the Dykmans Curve to adjust equity exposure as market conditions change. It aims to reduce equity exposure as markets rise and add exposure as markets decline.

The approach reflects Warren Buffett’s well-known advice: be fearful when others are greedy and greedy when others are fearful. It shows how an investment principle can become a repeatable process rather than a stressful judgment call.

How One Strategy Applies That Principle

Barron’s recently included Prestige Advisors Founder Mark Clark in its Advisor Big Q feature, “Here Are Investment Pros’ Favorite Funds for Today’s Choppy Market,” where Clark discussed the value of using tools, such as DunhamDC 80, which are “built to take emotion off the table.” 

This growth-oriented version of DunhamDC has a neutral allocation of approximately 80% equities and 20% fixed income. Based on the strategy’s rules, equity exposure can move down toward 60% near elevated market levels or rise toward 100% during significant market declines.

Because those adjustments are systematic, they do not depend on an investor acting courageously during a frightening downturn.

Discipline Does Not Eliminate Risk

No process, tool, or investment strategy can fully eliminate market risk. As Clark noted in Barron’s, the strategy removes improvisation, not risk. The same distinction applies to disciplined investing more broadly. A process cannot make every outcome favorable, but it can help investors avoid turning temporary emotion into a permanent financial decision.

In a sustained bull market, an approach that trims equity exposure as prices rise may lag a portfolio that remains fully invested. It can also lose money, and its allocation changes do not guarantee protection from a decline.

The most important goal is not about determining a one-size-fits-all, tried and true strategy, but rather to find a strategy that works for each investor’s individual specific situation and strategy. The objective is to build a plan around the investor’s life — and to establish discipline before it is needed most.

To discuss whether an investment strategy is aligned with current goals and risk tolerance, contact Prestige Advisors at (941) 799-3300 or hello@PrestigeAdvisors360.com.

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Disclosure: This content is for educational and informational purposes only. It does not constitute investment, financial, tax, or legal advice, and nothing here should be interpreted as a recommendation to buy or sell any security or pursue any specific strategy. All investing involves risk, including the potential loss of principal. Past performance does not guarantee future results. Tax laws are complex and apply differently to each person’s situation. Consult your own qualified tax, legal, and financial professionals before making any decisions.