Paul Ferraresi

Study after study shows that trying to “time” the market is a waste of time. You see, it is not “timing” the market, but rather, time in the market. Research has shown that 93% of a portfolio’s rate of return is due to the Asset Allocation. Specific security selection and market timing make up the other 7%. Then, why would someone waste their “time” trying to time the market when it makes up about 3% of the return.

If you study the reports from the Investment Company Institute you will see the “small” investor still tries to time things. In retrospect, they pour money into the market and hot mutual funds at a market top. Then, they do massive selling (liquidation) at market bottoms. You see they buy high and sell low…is this you??

Smart investors set their asset allocation and make buy/sell decisions when their allocations get out of alignment. This way there is no emotion in the decision. The newspaper headlines and TV “talking heads” create “greed or panic” in an investor’s thinking.

One other error that most investors make with “timing” is trying to “guess” which group, stock or mutual fund will be hot next! They switch back and forth between “hot” funds or stocks. Have you ever been on a freeway in a traffic jam? Have you ever constantly changed lanes trying to get ahead? Did you notice after all that maneuvering you are no further ahead than the “blue truck” that was next to you at the start? This is the same action as trying to guess the next “hot” area. It is a futile effort.

To make my point I have attached a chart from Morningstar Advisors. It shows major asset classes and when they were “hot and cold.” It is random. You can not time the market or guess the next hot area. So, do what the rich or thrivers do….set your allocation and adjust it when it gets out of alignment.

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My mom always said….If you want to be poor do what poor people do. If you want to be rich…do what they do. Mom was right!

You know….stick with discipline…or regret the results.