Timing the Market

Personal Money Planning |

By Gary Silverman, CFP®

Recently, the questions I’m getting from folks about “what to do about the stock market” have shifted into an interesting dichotomy. Seems that about half want to know if this is a good time to put more money into equities since COVID is getting under control and the economy should start recovering. The other half want to know if this is a good time to get out of the market since the economy has been hurt badly and the market has been climbing so high that something must break soon.

If you’ve read my columns over the years, you know that I don’t like making predictions of the future…and especially of the near-term future. You also know that I think a good investing philosophy is to stick with your preferred asset allocation (your mix of stock and other stuff) strategy through thick and thin and you will be well rewarded over time. That said, I do subscribe to many researchers (we’ll call them guessers) who try to predict where the stock market might be going in the near term, and mildly adjust my portfolios accordingly.

There is a rather big difference between increasing or reducing your equity holding by a few percent and jumping in and out of the market on those guesses. Now, if the researchers were always right, then jumping in and out would be a winning proposition. But I know and they know that they are not always right. In fact, they are often wrong. The markets might zig when they predicted a zag. Even when they are right, their prediction is months or years early, which is just about as bad.

Assuming the guessers are right more than they are wrong, over the long-term mild adjustments to a portfolio are likely to produce slightly better returns over a few market cycles. Unfortunately, if instead an investor either went to mostly cash or dramatically increased their stock exposure at the time of a wrong guess, the portfolio is likely to be hurt so bad that just sticking with your long-term strategy would have been a lot better.

So, if you want to try and time things, go right ahead, but only allow yourself to do that with a small portion of your total investments. It’s a form of speculation and as such should never be a major (or even sizeable minor) part of your portfolio.

On this vein, before I go, I thought I’d give you an example of one of the data points that many guessers use to predict the markets: Consumer Confidence. It’s a bit above average last I checked, an improvement over much of last year. From a near all-time high prior to the pandemic, it plunged to a bit below normal and has been zigzagging ever since. Not much to see there, but what about investors?

Looking at a measure of investor sentiment I use, it is showing extreme optimism, which you might think bodes well for the market. Maybe not. You see, it was at about the same place back in early March of last year. The next major market move wasn’t up.

See you next week.


Gary Silverman, CFP® is the founder of Personal Money Planning, LLC, a Wichita Falls retirement planning and investment management firm and author of Real World Investing.