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Timing Strategies…

[/fusion_text][fusion_text]Dow 25,000 seems to have stirred a lot of questions about timing strategies. Usually the conversation starts something like, “I know you guys normally do buy-and-hold, but wouldn’t I be better off getting out of US stocks now?” Believe me. I see the appeal to timing the stock market. It would be great to avoid large drops. I saw 2007-2009 first hand. That wasn’t fun.

As a big proponent of buy-and-hold investing, I still do research on strategies that time the market. Who knows? Some day one of them might work. I recently looked at some funds that compare long-term volatility of asset classes to the volatility they have experienced in the last 60 days. In simple terms the thinking is that when risk increases in the short-term, it’s time to get out before things get worse. It’s more nuanced than that of course.

There have been a few academic studies that looked into how this timing strategy would have performed over the past 50-100 years in the U.S. They found some long-term benefits to a strategy like this. The catch is that there are long periods of time when the strategy underperforms. When that hits, what conviction does the average investor have to stick with it? Do you really want me to walk you through the research that backs it up? It involves terms like skewness and kurtosis.

More practically, timing strategies tend to be expensive and tax-inefficient. Oh, and it also happens to be a zero sum game (for you to win, someone else has to lose). There’s an easier way to manage the ups and downs of the stock market which is don’t take more risk than you can handle in the first place. Then buy, hold, and rebalance over time. That will spare you from having to learn stats terms that you hoped never to see again.[/fusion_text][separator style_type=”single” top_margin=”” bottom_margin=”” sep_color=”” icon=”” width=”” class=”” id=””][fusion_text]

Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. ASA gathers its data from sources it considers reliable. However, ASA makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.