Market Timing and Your Retirement Nest Egg

I am primarily a “set and forget” retirement investor. I carefully allocate our investments among asset classes that are not correlated. This creates a “couch potato” or lazy man portfolio that should perform decently except during “black swan” market conditions in which everything falls. There are many investors who think differently. They are wrong.

These are “market timers” who buy and sell frequently in response to changing market conditions. They think they are geniuses, like the hedge fund managers. They are not geniuses. They are gamblers and speculators.

Recent data supports my belief that gambling and speculating (e.g., market timing) with your retirement nest egg is a dangerous idea.

What I do with our retirement portfolio is sometimes referred to as “strategic asset allocation.”  The portfolio is designed such that the asset allocation remains the same unless your goals change and/or you need to rebalance. If your goal remains “retirement income”, the only time you buy or sell is to add assets to one or more of the asset categories or to rebalance the porfolio.

Market timers, including the genius hedge fund managers, do not engage in strategic asset allocation. They are “tactical” asset allocators who shift investment asset classes based on short-term market expectations.

A recent Wall Street Journal article notes that tactical asset allocation has produced poor results in recent months. A key example is found in the returns results obtained by s0-called “macro” hedge funds.  Macro fund managers strive to to identify the next strong market segment and avoid the weak segments. They change allocations in their fund portfolios to do this. This is not working for them.

The HFRX Macro Index tracks these strategies.  This fund dropped 2.2 percent in the first half of 2011 compared to a 5.0 percent gain for the S&P 500, a 3.4 percent gain for the MSCI All Country World Index, and 2.7 percent gain for the Barclays Aggregate Bond Market Index.

Not exactly evidence of market timing genius, is it?

If you have tried market timing and failed, take a look at all weather, lazy, and couch potato portfolios. They will probably work much better for your retirement.

Here is a link to the article: More Bad News for Market Timers.


  1. Jan says

    Of course Wall Street would like us to believe that we cannot time the market- or do our homework- or watch the news- so they can make money off of our money. “Be rich by giving us your money”. Played the game once. Won during the boom years- lost it during the crash- won’t give them my money to play with again.
    So far so good.
    I am market timing. Currently, I took my 10% profits of the last bull market and moved it out of “interesting stocks” and moved them into the food stocks. About 1/4 of our money is in equities. I believe it will continue to be a rocky road until the next election.
    Fund managers put on their pants one leg at a time- just like I do.

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