No Time For Timing

Most investors who want to move their funds out of the stock market regard their potential action as a temporary move to the sidelines, rather than a permanent decision. Their proposed strategy is to “time the market” and attempt to ride out the storm in the shelter of the harbor, only to set sail again when the weather improves.

The volatility of the past quarter has once again led some down this market timing path, but there are obvious problems with this tactic. Perhaps the main one is, once an investor decides to leave the stock market, exactly when should they return?

Investors may believe it is prudent to wait for economic stabilization as a sign the stock market will recover. However, the market is typically a leading – rather than trailing – economic indicator. So by the time the weather appears clear from the harbor, the tide may have already gone out.

In truth, correctly timing your exit and entry to the stock market is sheer luck. If it were as simple as some claim, millions would be doing it and getting very rich in the process, promoting themselves and their timing strategy.

Consider this: How many so-called investment experts correctly got out of the stock market completely by October 2007 and moved into government bonds, then bought back stocks again in early March 2009, and then reversed course back to cash and bonds again in early 2010?

The short answer is, NONE. Most investors who played the timing game left the stock market between October 2007 and March 2009, and then re-entered later in 2009. They sold low, bought high, and felt miserable in the process.

As I’ve stated many times, no one can predict the future, and no one should attempt to time the stock market. By maintaining a long-term strategic asset allocation (the amount split between stocks/bonds), and practicing disciplined, periodic rebalancing, investment decisions can be based on personal needs and risk appetites, and not on the emotion of the moment.

Uncertainty will always be an integral part of investing (and life). No one has or will come up with a consistently successful strategy for timing the market, and investors would be much better off focusing on things they can control.