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.
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.