A wealth manager overseeing portfolios for high-net-worth clients has developed a hybrid investment strategy that combines the benefits of dollar-cost averaging with tactical market timing. Jeffrey Fratarcangeli, founder of Fratarcangeli Wealth Management, employs this approach for clients with an average net worth of approximately $10 million, challenging the conventional wisdom that investors should never attempt to time the stock market.
According to Fratarcangeli, the strategy involves allocating 60% to 70% of monthly client contributions directly into equities while keeping the remaining 30% to 40% in reserve within money market accounts. This cash reserve, which he refers to as “dry powder,” earns interest while waiting to be deployed during market downturns.
How the Hybrid Investment Strategy Works
The wealth manager typically waits for market pullbacks of 3% to 5% before beginning to add to positions. He becomes progressively more aggressive as declines deepen to 10% or 20%, according to his statements. This measured approach allows him to capitalize on market volatility while maintaining the disciplined framework of regular investing.
Fratarcangeli demonstrated this investment strategy during last April’s market decline, which he identified as a significant buying opportunity. He reported executing trades on April 4, 7, and 8, just before the market bottom on April 9. The trading volume during those three days exceeded double his previous largest trading activity, he said.
Beyond predetermined thresholds, Fratarcangeli uses client sentiment as a contrarian indicator. When clients express nervousness and urge him to sell positions, he interprets this as a potential buying signal. Conversely, when typically cautious clients become aggressive, he views it as a warning to reduce exposure.
Comparing Market Timing to Dollar-Cost Averaging
Research from Charles Schwab examining five investment strategies over a 20-year period from 2005 through 2024 provides context for evaluating market timing approaches. Each hypothetical investor received $2,000 annually to invest according to different strategies.
The study found that the investor who perfectly timed each year’s market low accumulated approximately $186,000. However, those who simply invested on the first day of each year or used monthly dollar-cost averaging ended up with about $170,000 and $166,000, respectively. Even the worst-performing strategy, investing at each year’s peak, still generated about $151,000.
Additionally, Fratarcangeli emphasizes that his hybrid investment strategy requires a minimum time horizon of four to five years, as shorter periods present excessive risk for equity exposure. The approach may not suit every investor, particularly those who lack the time or inclination to actively monitor market conditions.
Current Market Outlook and Sector Preferences
Meanwhile, Fratarcangeli is currently steering away from highly valued technology stocks in favor of sectors trading at more attractive valuations. He specifically mentioned industrials, materials, healthcare, agriculture, and metals as areas offering better value opportunities.
The wealth manager noted that many sectors trade at forward price-to-earnings ratios in the high teens to mid-teens. In contrast, the technology sector commands valuations of 30 to 50 times earnings, he said. Healthcare particularly appeals to him due to its combination of reasonable valuation and strong earnings outlook.
However, Fratarcangeli stressed the importance of maintaining portfolio diversification regardless of sector preferences. This balanced approach complements his broader philosophy of combining systematic investing with opportunistic buying during market dislocations.
The effectiveness of this investment strategy will continue to depend on market volatility and the manager’s ability to identify genuine buying opportunities. Investors considering similar approaches should carefully evaluate their own risk tolerance and time commitment before attempting to blend passive and active strategies.
