Should You Time The Market Or Tie The Market?

One of the age old debates on many financial message boards is the idea behind timing the market as the basis for your investing strategy. While it seems that the majority of people are firmly against trying to time the market, there are proponents that can make a very compelling case for the potential behind timing.

To be honest with you, I dabble a little in the area of timing the market as I have really become interested in technical analysis and using short-term swing trades to get in and out with modest gains. However, I do not use this strategy as the foundation of my investment portfolio.

Know Your Limitations
As much success as I have had with my individual stock transactions, I do not feel that I have the time or energy to devote in order to feel comfortable basing my entire retirement portfolio on my stock selections. Further, I do not think many of the high-priced money managers are that good to beat the market on a consistent basis.

Therefore, I have opted to go with index funds as the core of my retirement portfolio. Sure, they aren’t flashy and there isn’t much hope of a year where the returns smash those of the overall market. But because I am not getting in and out of my holdings based on market conditions, which often result in investors getting in and out at the wrong times, I have had my core portfolio grow at a reasonable pace year after year.

As index funds have continued to grow in popularity, there are more options available now and it is possible to build a very well-balanced portfolio with nothing but index funds.

But Timing Can Be Fun
Even as I have my core retirement funds and contributions being directed into the index funds that have created the foundation of my retirement planning, I have to admit that there is a real thrill involved with trying to time the market and/or use technical analysis in your trading.

While I don’t think this style is for everyone and I certainly don’t recommend using this strategy for all of your retirement savings, I have thoroughly enjoyed my experiences and use my “mad money” to satisfy this aspect of my retirement savings. As I mentioned earlier, I have had tremendous success (at least as far as I am concerned) with my efforts to time the market but I realize that trying to use this strategy for all of my funds would be too stressful for my tastes.

Finding Your Balance
If you find yourself intrigued with the ideas behind timing the market and using technical analysis to dictate your trades (note that I did not say investments), I would encourage you to explore the possibilities. However, I think it is important to still have a solid foundation being built while you look at these other options.

At the end of the day, many of us are not experts when it comes to selecting stocks and many of the so-called experts cannot consistently outperform the overall market. Therefore, it makes sense to evaluate broad index funds, or possibly ETFs, to establish the core of your portfolio.

While I do believe that you can make money timing the market, I also believe it is just as easy to lose everything trying to time the market. By taking the time to educate yourself, you will be able to determine the proper balance for your own tastes. Historically speaking, there is nothing wrong with earning the market averages over an extended period of time. But because past history cannot predict the future, I think it is prudent to dabble a little in other ventures as well.

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2 Responses

  1. Chris B. says:

    I read an interesting book on timing the market by Ben Stein called, “Yes, You Can Time the Market!” He gives statistical evidence that shows how investors in the past could have beaten a buy and hold strategy by buying and selling at certain times.

    • mnc says:

      I’ve seen that book a few times but never taken the time to pick it up and give it a read.

      The problem with the evidence of beating the buy/hold is being able to buy and sell at those certain times. If you miss the right time to buy/sell, you lose the advantage against the buy/hold strategy.

      For my core retirement savings, I am purely buy/hold but I do have a pure trading account and that is where I’ve been trying my hand with a technical analysis approach.

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