I received some great feedback from Enough Wealth telling me that in the long run trying to time the market may get me in trouble. I agree. For the most part I don’t do it, but my 401k is setup such that I can reallocate so easily. It’s hard not to. On top of that, they allot me X transactions a year, free. Since this cost is already included in the maintenance of my 401k, why not use it? Do you try to time the market? Do you think I should still not do it?
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I think that timing can be a legitimate approach if you are cautious and don’t try to do it too often. I did a bit of market timing during the crash after 9/11 and have faired quite well with those trades. My only regret is that I didn’t leave the trades alone long enough after that. I could have made a lot more than I did!!
Well, the potential danger in timing the market is much less in the fees and transaction costs, as it is simply getting it wrong. Sell at the bottom and buy at the top once or twice and you have a lot of ground to make up.
However, as you may remember from a couple of my posts about market timing, you don’t have to be perfect for there to be benefit.
I guess the biggest consideration in any market timing system would be, what is your criteria to buy or sell? Without objective criteria, you are going with “your gut.” I would be a little wary about that.
Now you know..I wouldn’t want to tell you what to do, but….ha ha.. so funny aren’t I, since you asked.
I do not trust myself enough to try and time the market. Although in my own little ways I do the same thing. When I see a stock go down below my average price, I will kick in a couple dollars. I say a couple, cause that is all I have.
Do what is best for you. I think you err on the side of caution, so I don’t think you will do anything crazy. Go for it and make your money work for you. No one loves your money more than you! You will do the right thing, and if not…learn from it and move on. It’s only money.
Hazzard, I hear ya! I’ve had many episodes of that…I need a crystal ball.
LMG, I do invest on gut a lot…depending on how the outlook on economy, world news, etc is. The good thing about my 401k is that I can only moves funds between various funds, so I’m not really “market timing” like with individual stocks. I’m not going to take the huge hits I might take with individual stocks.
D, I generally err on the side of caution…I don’t think moving my money to an aggressive fund is that dangerous…it’s not a single stock, so it may go down, but not 50%…Hopefully. That I don’t think I could handle.
Me again
I must admit even I “re-allocated” my retirement funds to be weighted a bit more into property when the Oz sharemarket was dropping in 2001, and then went back to my more stock-centric weighting in 2003, just in time to benefit from a big bull run. (My long-term allocation in my retirement account is 45% AU-shares, 45% International (mainly US) shares, and 10% property funds).
But I still think I shouldn’t do it, and that I’m as likely to underperform than outperform by doing so… It’s just soooo hard to resist.
One other point - my superannuation (retirement) account also allows you “free” switches between the various fund options. BUT don’t forget that there’s usually a buy-sell spread in the unit prices which costs you a bit each time you do a switch. It’s not material as a “one-off” expense, but, in the long run, doing several reallocations a year over 20+ years would impact your annual return by 1% or so (out of, say, a 10% total return) - which will have a big effect on your final balance.
Regards
http://enoughwealth.blogspot.com
Oh that’s a good point…1% could be significant! Thanks Enough Wealth!
I’ve often used the strategy of watching for major companies that have dipped recently. They are likely to return to normal soon so they are often a good buy. of course there is always the occsional Enron or Worldcom, so it’s not quite a safe form on investing.