A few days ago The Wall Street Journal carried an excellent article by Mark Hulbert, basically concluding that, “trying to time the market is by and large a losing proposition, even for the pros.”
Mr. Hulbert further noted that, “it is hard to decide when the market has peaked and it’s time to get out. It may be even harder to know when the damage is over and it’s time to get back in.”
There might be some logic to that as when markets hit new all-time highs, investors should be on notice that much of the short-term opportunity may have passed. Markets do not hit all-time lows, making it much more difficult to pick the turning point in a down market.
If market timing doesn’t work, and the evidence is substantial, what should investors do? Over time, a buy and hold strategy has proven to be quite successful. This can be augmented by careful attention to rebalancing.
Historically, rebalancing has proven to be a rational approach to market fluctuations. Investors should establish, with the help of their advisor(s), an appropriate target balance between fixed income and equity assets. With this in place, a rising market represents an opportunity to both capture some gains and continue to participate, if the market continues to gain ground. By increasing liquidity on the way up, resources become available to be deployed during a falling market.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA®