Surge and Protect Strategy: It is time for Protect Mode

March 26, 2020
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At Pinnacle Wealth Management we are fiduciaries and we strive to do what is in the best interest of our clients. While we are unable to ensure a profit or protect against all loss, we created the Surge and Protect Strategy to do our best to protect as much as we can during uncertain economic times. When the market is in decline, as it is right now, we enter a Protect Mode that helps us to preserve as much of your wealth as possible.

For many years, we took the approach that many other advisors take: buy, hold, and hope. We would buy investments and in times of economic uncertainty, we would hold onto the assets and hope that the market would quickly rebound. In 2008 during the Great Recession, this led to many sleepless nights for Tom and our team, wondering if there was something better that we could do for our clients.

A better Strategy for Investment Management

As markets rebounded after the Great Recession, we began to implement a new strategy to hopefully provide a better solution for our business and our clients. Tom called it Surge and Protect. The idea was that we would Surge with the markets as they went up, keeping our clients fully invested. In addition, we would employ a protect feature that would kick in if the market ever dropped more than a predetermined percentage that we had set for each individual holding (either 10% or 15% depending on the type of asset). Recessions are a natural, albeit uncomfortable, part of a healthy Stock Market. It made sense for us to have a Protect Mode as a part of our investment strategy to help prepare our clients for market downturns that would inevitably occur.

In the early days of implementing Surge and Protect it became increasingly clear to us that it was in the best interest of our clients to offer this investment strategy as a part of a comprehensive Wealth Plan. Many of our clients are retired or near retirement. They have worked their entire lives to build wealth and save as much as they can to prepare for their future. This population is much more vulnerable in a market downturn because they are no longer working and cannot regenerate the irreplaceable capital that they have lost. The Surge and Protect Strategy helps these susceptible populations to protect more of their assets by triggering a sell when the market drops to the predetermined percentage that has been set as the floor.

We keep emotions out the decision-making process

As we have used the Surge and Protect Strategy over the past 10+ years, we have found that it has been an effective tool for us to address market corrections.

  • It eliminates emotional triggers to sell

We typically sell under 3 conditions

  1. If a particular investment is no longer performing as we want it to, we sell it for all clients who own that particular investment.
  2. If an individual client wishes to make a distribution or a change to their Wealth Plan and investment strategy, we sell assets to cover the distribution or implement the changes.
  3. If the market is down and the floors are hit, each asset is automatically sold as the individual floors for that investment are hit.

The floors are set ahead of time and they are triggered automatically when the investment is down enough to reach the preset floor. We have experienced many periods of economic uncertainty over the past decade. Sometimes we hit our floors and we sell. Other times we do not. Having a plan in place that takes the emotion out of the decision to sell has helped Tom and our team to sleep much better since we implemented the Surge and Protect Strategy. We know that the floors are there and will initiate Protect Mode when necessary.

  • It eliminates emotional triggers to buy

We only buy back into the market when our predetermined indicators show that it is likely a good time to get back in. We regularly monitor the market indicators that we have set so we can be prepared to get back in when the market is in position to Surge again. This allows our clients to continue to preserve as much of their wealth as possible. By waiting for the market to settle on the bottom for each downturn, we miss a bit of the upside but, avoid buying back in too early. It helps us to prevent having to sell again after losing more of our clients’ hard-earned assets.

  • It reduces stress and confusion

It has been a huge asset for our firm to be clear about when we will be in Surge Mode and when we will be in Protect Mode. We know that a significant market decline will put us in Protect Mode. We know that we will not re-enter the market until indicators suggest that the market is ready to Surge again. We can continue to work hard for our clients while remaining calm and confident in our approach.

How long will we be in Protect Mode?

No one knows for sure when a market bottom will be hit. In this current downturn it could be days, weeks, or even months before we see positive indicators in the Stock Market that would suggest it is time for us to Surge. There is a reason that guarantees are not a part of our business plan. We cannot predict the market, so we do not make any promises about returns. Instead of promises we make plans. Using your Wealth Plan and our Surge and Protect Strategy to guide us, we can help you to weather the current economic storm no matter how long it lasts.

We are always here to answer your questions and help in any way that we can

Even though we have clearly defined parameters that dictate what we will do to serve our clients to the best of our abilities, that doesn’t mean that times like these are easy and stress free. We know that you are concerned right now. We are too. It is a challenging time for our country and for the entire world. That is exactly why we have a Protect Mode.

We believe that being conservative in times of volatility is appropriate for our clients. You worked hard to build up your wealth and we want to work hard to help you to protect as much of it as we can. Being conservative helps us to sleep better at night knowing we have done our best to do what we can to help protect you, our clients.

If you have any questions about our Surge and Protect Investment Strategy or you would like some help creating your Wealth Plan to help you through this challenging economic time, call us and we will happily answer your questions and discuss your personal situation.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All investing involves risk including loss of principal. No strategy assures success or protects against loss.

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