Market Timing With Your Mutual Funds


Market Timing With Your Mutual Funds

Market timing with your mutual funds
When investing in​ bonds, stocks, or​ mutual funds, investors have the​ opportunity to​ increase their rate of​ return by timing the​ market - investing when stock markets go up and​ selling before they decline .​
a​ good investor can either time the​ market prudently, select a​ good investment, or​ employ a​ combination of​ both to​ increase his or​ her rate of​ return .​
However, any attempt to​ increase your rate of​ return by timing the​ market entails higher risk .​
Investors who actively try to​ time the​ market should realize that sometimes the​ unexpected does happen and​ they could lose money or​ forgo an​ excellent return.
Timing the​ market is​ difficult .​
To be successful, you​ have to​ make two investment decisions correctly: one to​ sell and​ one to​ buy .​
If you​ get either wrong in​ the​ short term you​ are out of​ luck .​
In addition, investors should realize that:
1 .​
Stock markets go up more often than they go down.
2 .​
When stock markets decline they tend to​ decline very quickly .​
That is, short-term losses are more severe than short-term gains.
3 .​
The bulk of​ the​ gains posted by the​ stock market are posted in​ a​ very short time .​
In short, if​ you​ miss one or​ two good days in​ the​ stock market you​ will forgo the​ bulk of​ the​ gains.
Not many investors are good timers .​
The Portable Pension Fiduciary, by John H .​
Ilkiw, noted the​ results of​ a​ comprehensive study of​ institutional investors, such as​ mutual fund and​ pension fund managers .​
The study concluded that the​ median money manager added some value by selecting investments that outperform the​ market .​
The best money managers added more than 2 percent per year due to​ stock selection .​
However the​ median money manager lost value by timing the​ market .​
Thus, investors should realize that marketing timing can add value but that there are better strategies that increase returns over the​ long term, incur less risk, and​ have a​ higher probability of​ success.
One of​ the​ reasons why it​ is​ so difficult to​ time correctly is​ due to​ the​ difficulty of​ removing emotion from your investment decision .​
Investors who invest on​ emotion tend to​ overreact: they invest when prices are high and​ sell when prices are low .​
Professional money managers, who can remove emotion from their investment decisions, can add value by timing their investments correctly, but the​ bulk of​ their excess rates of​ return are still generated through security selection and​ other investment strategies .​
Investors who want to​ increase their rate of​ return through market timing should consider a​ good Tactical Asset Allocation fund .​
These funds aim to​ add value by changing the​ investment mix between cash, bonds, and​ stocks following strict protocols and​ models, rather than emotion-based market timing.






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