Allan Roth - 5 Ways I'm an Active Investor

Last Updated Jun 12, 2011 12:52 PM EDT

If you think of me as strictly a buy and hold index investor, think again. Sure, in the grand scheme of things, I guess it would be fair to say that I'm very much a passive investor who believes in diversification and low costs. But there are also ways I consider myself an active investor. There are five ways, in fact, and here they are:

Active Strategy #1: Market Timer
In no way am I a "buy and hold" investor. I actually time the market and have profited from from it. No, I don't use technical or fundamental analysis, I use something far more scientific -- behavioral economics.

My system for market timing is simple and effective -- it's called rebalancing. And I use this system whenever the target allocations I have set for my portfolio move up or down by more than 5 percentage points. For example, my equities target is 45 percent, so I will rebalance if the percentage becomes greater than 50 percent or less than 40 percent.

This is a contrarian strategy that requires me to buy equities in a down market such as 2008 and early 2009, and sell in up markets such as we've had in the last couple of years. Behavioral finance tells me consumers will be doing just the opposite.

note: image from
Turn the page for active strategy 2: Fixed income

  • Allan Roth On Twitter»

    Allan S. Roth is the founder of Wealth Logic, an hourly based financial planning and investment advisory firm that advises clients with portfolios ranging from $10,000 to over $50 million. The author of How a Second Grader Beats Wall Street, Roth teaches investments and behavioral finance at the University of Denver and is a frequent speaker. He is required by law to note that his columns are not meant as specific investment advice, since any advice of that sort would need to take into account such things as each reader's willingness and need to take risk. His columns will specifically avoid the foolishness of predicting the next hot stock or what the stock market will do next month.