For retirees, protecting your savings while still finding growth opportunities is key. Relative strength investing can help by highlighting stocks or funds that have been outperforming the market, allowing retirees to focus on proven leaders. While it’s not without risks, understanding relative strength can give retirees another tool for making smarter, more selective investment choices.

What Is A Good Relative Strength For A Stock?

A good relative strength (RS) for a stock generally means that the stock is performing better than most other stocks in the market.

• Relative strength is a score (from 1 to 100) that compares a stock’s price performance over a certain time period to all other stocks.
• A higher score means the stock has been stronger than most others.
• Many investors look for stocks with an RS above 70 or 80, as these are generally considered strong performers.
• It’s important to note that RS doesn’t guarantee future performance. It’s just a tool to spot stocks that have been doing well recently compared to their peers.

In short, A “good” RS is usually above 70, and the closer it is to 100, the stronger the stock’s recent performance has been.

What Is The Relative Strength Strategy For Investing?

The relative strength investing strategy is a way of picking stocks based on how well they’ve been performing compared to others in the market.

Here’s how it works in simple terms:

1. Measure performance. Investors look at how much a stock’s price has gone up (or down) over a certain period, like the past 3, 6, or 12 months.
2. Rank the stocks. Stocks are compared to each other and given a relative strength (RS) score. Higher scores mean better past performance.
3. Buy the leaders. The strategy focuses on buying the stocks with the highest scores, because these have shown the most upward momentum.
4. Sell the underperforming stocks. Stocks that start to lose strength or fall in ranking are sold, and the money is moved into stronger stocks.

The main idea is based on momentum investing, the belief that stocks doing well now tend to keep doing well for a while.

How To Find High Relative Strength Stocks

You can find high relative strength stocks by looking for stocks that have been outperforming most of the market over a set period. Here’s how to do it step-by-step:

1. Check Stock Websites with an RS Rating

• Many websites and tools let you sort stocks by Relative Strength (RS) or Relative Strength Index (RSI, not the exact same thing, but sometimes included).
• For example, Investor’s Business Daily (IBD) is famous for its RS ratings. Yahoo Finance and other websites let you filter by performance over a chosen time frame.

2. Compare Price Performance to a Benchmark

• Look at how a stock has performed vs. a major index like the S&P 500 over the last 3, 6, or 12 months.
• If it’s consistently beating the index, it has high relative strength.

3. Look for Uptrends on a Chart

• Strong RS stocks usually have charts that slope upward and stay near recent highs while the market might be choppier.

4. Watch Sector Leaders

• Often, the strongest stocks are also leaders in the strongest sectors.
• If a sector (like tech or energy) is hot, its top stocks often have the highest RS.

What Are the Pros And Cons Of Relative Strength Investing For Retirees?

Here’s a clear breakdown of the pros and cons of using a relative strength (RS) investing strategy if you’re a retiree:

Pros:

1. Focuses on strong performers. Helps you stay invested in stocks that are currently doing better than the market, avoiding underperformers.
2. Can boost returns in strong markets. Momentum stocks (high RS) often keep rising in the short term, which can help grow or preserve retirement savings.
3. Objective, rule-based approach. Reduces emotional decision-making by following clear performance rankings instead of gut feelings.
4. Adaptable to different markets. You can apply RS to stocks, ETFs, or even sectors to find the best opportunities at any time.

Cons:

1. Higher volatility. High RS stocks can drop quickly when trends reverse, which can be risky for retirees relying on stability.
2. Short-term focus. RS is based on recent performance, which might not reflect long-term fundamentals or income potential.
3. More frequent trading. Requires regular monitoring and rebalancing, which can mean more time, effort, and transaction costs.
4. Possible tax consequences. Selling winners to chase new leaders can trigger capital gains taxes, reducing net returns.

Bottom Line For Retirees

Relative strength can help you avoid weak investments and capture market leaders, but it’s best used as part of a diversified portfolio, not the only strategy. Pairing RS with steady income investments (like dividend stocks or bonds) can balance growth potential with stability.

Want to learn more about relative strength in stocks? Contact Zynergy Retirement Planning today.