When Might You Market-Time?
There are a few situations where a little market timing might make sense. As we described above, market timing is not necessarily a binary concept. There are four scenarios that may arise.
- Working with financial planners throughout the country, we know income planning is a key part of the financial planning process. We would advocate for investors to pay close attention to the timing of liquidations for cash needs. If the opportunity does avail itself to liquidate assets after a recent period of significant market growth, we would understand liquidating assets you are expecting to use soon for cash needs.
- Secondly, we feel it may make sense to rebalance your disciplined portfolio allocation after a recent period of above-average market growth. However, the trigger for this event should be some sort of discipline that has been set up to monitor drift from a target allocation.
- Thirdly, we feel it might be necessary to exercise some market timing due to significant changes in market-based assumptions. If your strategic target allocation was based on certain assumptions, and those assumptions change unexpectedly, this might cause a need to adjust and make a judgment call on timing.
- Lastly, there are disciplined hedging strategies designed to reduce exposure to equities in periods of high volatility. We feel proven systematic risk reduction strategies can add value over time. However, it is important to remain disciplined and not try to time in and out of an established hedging strategy.
Please Don’t Regress
If you are a disciplined investor, please don’t regress to the natural tendency to market-time. If you get the temptation, we would encourage you to think about carnival games. Maybe you could only allocate the percentage of your net worth to true market timing that you would be willing to allocate to playing the oval-rimmed basketball game.
ValMark Advisers Inc. is the manager of the TOPS Portfolios of ETFs. ValMark started managing "TOPS" separately managed accounts of ETFs in 2002. The firm manages more than $5.1 billion in ETFs for retail and institutional clients in multiple investment products. Email: [email protected]; phone: 800-765-5201. For a complete list of relevant disclosures, please click here.