by amy m. armstrong
SKIP “BUY AND HOLD”
THE TRADITIONAL APPROACH TO RIDING OUT THE MARKET IS INEFFECTIVE
Simply put: The investment paradigm has to shift if an investor wants to be fully successful in attaining financial security, not only for the retirement years, but also for the years ahead of that life milestone.
o says Jeffrey Cutter, president of Cutter Financial Group, LLC, with several offices in Massachusetts. The paradigm shift Cutter references isn’t the traditional transition from an accumulation phase to a distribution phase that the bulk of financial advisors discuss. In fact, he doesn’t necessarily use those regularly-applied terms. Instead, Cutter focuses on managing client portfolios using “drawdown” across the entire performance of the portfolio versus an emphasis on the “buy and hold” strategies that he insists are erroneous. The idea of “waiting out” a market correction to regain losses on the rebound is not one he subscribes to. “Brokers say to their clients, ‘Do not sell now. It is just a paper loss,’ ” Cutter said. He doesn’t believe that to be true in terms of the impact on portfolio performance. “Any loss – especially to a retiree – is a real loss. They often do not have time to try to make up that loss when the market recovers. That is why the paradigm has to shift.” His insistence on taking a radically different approach to portfolio performance is grounded in the way he works. Cutter noted that he works from a fiduciary standpoint, putting the best interest of the client first. So, what is it that he is doing so differently? Cutter works with institutional THE SUIT MAGAZINE - SEPT 2015
fund managers rather than with rejust over $102,000. Under his style of tail market fund managers. “Their investment management, that same fees tend to be less costly than those $100,000 account ended that tumulof retail market fund managers,” he tuous decade – which featured the said. Their investment philosophy bursting of the housing bubble and – supported by active rather than the Great Recession – with a $400,000 passive management of account perplus balance. formance – also lines up with his Cutter entered the financial world much better. This is because Cutter in 1994 and finally hung out his shinand institutional managgle in 2004. He saw what ers seek the same thing: happened during years investments with ex- CUTTER FINANsuch as 2001, 2001, and tremely low downside CIAL GROUP, 2003. “Those were argurisk. They are seeking LLC ENGAGES ably the worst years for investment strategies HIGH QUALITY, the stock market since that come with a much the Great Depression,” INDEPENDENT smaller drawdown efCutter said. He believes fect on the entire portfo- WEALTH MANkeeping client portfolios lio when the traditional- AGERS WHO focused on choices that ly-sought investments of SPECIALIZE IN come with miniscule the market take a hit. losses of six to fifteen SIGNIFICANTLY As an example, Cutter REDUCING RISK percent are far superior uses past performance to as compared to the stagillustrate the difference DURING TIMES gering losses of the “buy between drawdown OF VOLATILITY and hold” models that methodology, and the LIKE WE HAVE often result in anywhere more traditional buy SEEN FOR THE from 35 to 50 percent and hold strategy. losses as were experiPAST 12 YEARS, “The mainstream of fienced in 2008. “I believe nancial advisors use the WHILE CAPTURfolks just need to be eduS&P 500 to determine ING A LARGE cated,” he said. investment choices,” he MAJORITY OF Cutter thinks the insaid. In his opinion, that THE GAINS OF vesting public has believed, in error, for far is a mistake – and this THE UPSIDE. too long, that it is okay to is why. Investors with lose half of a portfolio’s $100,000 in the S&P from value every five to six years. This years 2000 to 2010, using a buy and same investing public continues to hold strategy, would have ended pour dollars into accounts to purthat decade with an account value of