I know what you think about market timing...

[ARB57]

but...since I'm all in cash and looking to reach a 30% equity position...I can't help but look for the best possible entry point. Would you a) wait, b) begin dollar cost averaging now or c) go with a lump sum now. If you choose DCA, what kind of a schedule would you use?

Thanks. (56 years old, just retired and need to stay ahead of inflation.)

 

[OptimistPrime]

If you start from the assumptions that you're comfortable with the risk of 30% stocks (i.e. that you could lose half of it tomorrow), option A is right out. The only real decision is whether you can stomach (physically and psychologically) short-term losses on 30% of your portfolio. If so, throw it in to get to your desired asset allocation. If not, DCA it in weekly over the next 1-12 months.

If you put it all in and the market jumped next week, how much would you care? If you put it all in and the market tanked next week, how much would you care? The only way to mitigate a "yes" is to reduce your stock allocation, or DCA it to smooth out short-term psychological hurdles.

I further assume you chose 30% stocks as being both sufficient for meeting your goals while also matching your risk tolerance -- if so, you should put it in. If you're hesitant, maybe 30% wasn't the right number (in that case, what is?).

 

[target2019]

Some use momentum and technical indicators to move in and out of sectors as the market goes through cycles. I am not in total understanding of this, but I believe 'they' would say you should wait for better indicators, clear indications of momentum. Problem is that in cash, you are losing something right now.

I spend a lot of time reading Morningstar Portfolio Design/Management forum. Following an investment-focused discussion board is a good idea, I have found.

 

[JPatrick]

People can say what they want about dirty rotten market timers, but in reality most serious investors are just that.
Think about it--If the dow falls 1000 points and you decide to add some $$$ to your holdings--you are a timer.
Market timing has become self fulfilling because so many use it.
You don't have to be a fanatic to simply look at a DOW six month chart and discern that we are in a period of crazy ups and downs. The newspaper will likely confirm this may well continue.

So, I'd check out the chart and add perhaps 20% at a time when we take those major shots downward. That assumes you already know what you want to buy.

PS: A good timing book is All About Market Timing by Leslie Masonson.

(of course you'll need to keep it hidden--mine is in the bread drawer)

 

[REWahoo]

People can say what they want about dirty rotten market timers...

I think you've already covered all the bases.

 

[chinaco]

I would probably DCA.... probably using a time period of no less than a year... probably 18 months to two years as a starting point (span the election and a potential recession).

If along the way, it became more clear about economic conditions, I would adjust. for example: if it became clear we were headed for a recession... I might put the brakes on for a bit (during the freefall). Likewise, if it became apparent that things were looking up... I might take the remainder and lump the rest of it.


IMO - the first goal would be to determine goals and a long-term strategic allocation to meet those goals. I would stick with the strategic allocation approach... just my opinion.

 

[JPatrick]

I would probably DCA...
If along the way, it became more clear about economic conditions, I would adjust. for example: if it became clear we were headed for a recession... I might put the brakes on for a bit (during the freefall). Likewise, if it became apparent that things were looking up... I might take the remainder and lump the rest of it.


.

Adjust--brakes

AKA market timing

 

[LOL!]

You should follow my market timing newsletter. You won't lose that much money and in the end you will probably come out ahead.

Whatever you do, you will not want to follow what other investors do.

Why are you all cash now? Did you sell in April 2011? What are your feelings towards bonds and other fixed income?

In theory you can have a portfolio of 100% TIPS, but make sure they are laddered for when you want to spend them.

 

[utrecht]

I would probably DCA.... probably using a time period of no less than a year... probably 18 months to two years as a starting point (span the election and a potential recession).

If along the way, it became more clear about economic conditions, I would adjust. for example: if it became clear we were headed for a recession... I might put the brakes on for a bit (during the freefall). Likewise, if it became apparent that things were looking up... I might take the remainder and lump the rest of it.


IMO - the first goal would be to determine goals and a long-term strategic allocation to meet those goals. I would stick with the strategic allocation approach... just my opinion.

When is it ever clear that we are heading for a recession? Right now I'm hearing numbers like 40-50% chance. Must be nice to come up with numbers like that where you cant be wrong. Its like the weather man saying we have a 50% chance of rain. If it rains, he says "I told you so" and if it doesn't he says "there was only a 50% chance".

By the time the numbers come in that say we are in a recession, we have already been in one for months and the market anticipated it and has already dropped significantly.

 

[easysurfer]

but...since I'm all in cash and looking to reach a 30% equity position...I can't help but look for the best possible entry point. Would you a) wait, b) begin dollar cost averaging now or c) go with a lump sum now. If you choose DCA, what kind of a schedule would you use?

Thanks. (56 years old, just retired and need to stay ahead of inflation.)

I think that if your strategy is to market time, then I'd go with the entire lump sum when you get the crystal ball working, oh I mean "signal" that the time is "just right". If you are confident in your market timing system, there really should be no doubts, so step up to the plate and take your best swing .

But if you wish to use asset allocation and rebalance, I'd choose a timeframe you want the allocation completed and do the math and choose your interval and amount to do just that. You can even do that automatically. I've done that before, by wanting to move my entire position in one fund (for example, Europe international funds) to bond funds.

They say, whichever strategy you choose to choose one and go all the away. So if you market time, don't be bashful, go ahead and take your best cut and try to knock it out of the park. If you DCA and rebalance, try not to out guess yourself and have the self-discipline to hang on and continue to DCA even in a way down market.

 

[ziggy29]

I think that if your strategy is to market time, then I'd go with the entire lump sum when you get the "signal" that the time is "just right". If you are confident in your market timing system, step up to the plate and take your best swing .

But if you wish to use asset allocation and rebalance, I'd choose a timeframe you want the allocation completed and do the math and choose your interval and amount to do just that. You can even do that automatically. I've done that before, by wanting to move my entire position in one fund (for example, Europe international funds) to bond funds.

+1

I don't think I'm smart enough to call the top or bottom on anything (except oil as a contrarian indicator) so I would probably just put in about 3% a month for 10 months or so. Use the same day each month to eliminate the temptation to "time" the best day to enter - say, "buy in on the 2nd Wednesday of each month" or some such.

If 3% is too small an increment, you could do something like 10% now and another 10% 3 months from now and 6 months from now. The specifics of the DCA -- how much and for how many periods -- is less important than following the dynamic and averaging over an appropriate period (say 6-12 months overall).

 

[Animorph]

I expect the market to be heading down for maybe the next year or so. Because of that I would DCA over that period or invest a portion whenever the market hits significant new lows (say 5% lower than your last investment), or a combo of both. With DCA you are guaranteed to reach your desired allocation no matter what, but you may be in too early or too late with much of it. If you wait for triggers you may be in too early/late or may never reach your allocation and miss out on a rising market. If you do it all in now you might be too early. If you wait you will probably be late, but could be too early also. There is no way to know for sure.

Given that the market normally rises, on average you will lose out on some market gain if you delay or DCA. If you were going to be investing like this maybe 10 times thoughout your lifetime I'd say do it all now and the total result after all 10 investments would tend to average out to something better than using DCA for all 10 investments. If this is your one and only time to be investing this much, that's more difficult.

Prices are getting close to recent lows now. That's not a bad time to invest. If you were already invested you would have 30% equities right now. Would you be considering reducing that amount now, or have done it in the past? If so, waiting or DCA makes more sense. If not, doing it now might be more appropriate.

I do have cash to invest right now and I am waiting for the market to fall a bit more. I will invest in increments if the market keeps falling. However, I am retired and will need to spend this cash eventually. If the market rises and the cash isn't invested, it'll be spent in a few years and I won't be missing out on much (on average at least). That makes it easier for me to wait.

So for you I'd have a DCA plan, maybe monthly spread over a year long, and keep it flexible to advance the schedule if the market hits new lows. I wouldn't mind being fully invested at -40% from the current 52 week highs, but we don't know yet if that is an option. You never know, if things start looking up you may lose some gains from using DCA instead of investing it all now. So which potential problem do you most fear?

 

[GregLee]

They say, whichever strategy you choose to choose one and go all the away.

That makes no sense to me. Who is "they"? Do you have a reference?

 

[easysurfer]

That makes no sense to me. Who is "they"? Do you have a reference?

Actually, I think the "they" is pretty much conventional wisdom.

Here's one of the "they":

1 Winning Investment Strategy

In otherwords, don't be a timer one day, than buy/hold/rebalance another. Or don't try to be passive one day, than active the next.

 

[easysurfer]

A couple more:

"It's important to have a clear objective and strategy, and stick to it, because if you change your strategy all the time, you will never reap the benefits associated with that method."


Guide to Stock Investment | eHow.com



"Having an investment strategy for both asset mix and security selection is important to ensure consistent success as an investor. Having the discipline to follow an investment strategy is more important than the actual strategy chosen. Equally important to any strategy is determining what to manage yourself and what to delegate to others."


http://www.investopedia.com/articles/financial-theory/08/investment-strategy.asp#axzz1Wv5tNb5c


Moral of the story .... know your strategy and stick with it.


p.s.
That said, for me, the only market timing I really do is "Time the stoplight" when crossing an intersection. Now when the light turns yellow..do I speed up or slow down? Maybe that's another thread...

 

[Chuckanut]

Here's my method of market timing:

1. Monthly paycheck contributions to my IRA Account, go in regardless of what the market is doing. The contribution is divided up as 50/50.

2. I am moving my portfolio from about 42% stocks to the desired 50% stocks. I wait for a pullback of 10% or more and then move 1% from cash to stocks. If the market moves another 5% lower, I put in another 1%, and so on. If the market is bumping up against all time highs, I don't move any money.

I figure that I want my stock market money to be weighted towards more investments when the market is down and fewer when the market is up. Since my crystal ball is cracked and my time-machine is broken, I know I will never be able to always avoid the highs and always invest at the lows. But, I think I can slightly tilt the playing field to my advantage. Very slightly.

 

[GregLee]

In otherwords, don't be a timer one day, than buy/hold/rebalance another. Or don't try to be passive one day, than active the next.

There are more "they's" out there..this was the first one I found after a short search.

Fine, have a consistently applied strategy. But you said something significantly different -- that if you market time at all, you must be confident you'll always get the timing just right:

I think that if your strategy is to market time, then I'd go with the entire lump sum when you get the crystal ball working, oh I mean "signal" that the time is "just right".

Then, since no rational person could ever know for sure that he knows precisely when the market will turn up or down, then no one should ever try to improve on a random or fixed-interval strategy of when to invest. This goes far beyond the advice that one should follow a strategy consistently.

 

[ziggy29]

Then, since no rational person could ever know for sure that he knows precisely when the market will turn up or down, then no one should ever try to improve on a random or fixed-interval strategy of when to invest.

If you believe "no rational person" can do it. I for one have never asserted that; I just don't believe I can -- or at the very least, I'm not willing to put a significant portion of my portfolio on the line to test the theory.

 

[GregLee]

If you believe "no rational person" can do it.

I believe that no rational person can be confident that he will be able to predict market highs or lows with complete precision. Surely, no one who tries to time the market believes that he can do so perfectly. Market timers are just looking for an edge. Maybe they can't even get an edge -- I don't know. I'm not arguing in favor of market timing.

 

[ziggy29]

I'm not arguing in favor of market timing.

Neither am I, but I'm not saying it can't be done with at least some success (defined as long-term market-beating performance). I think it takes just as much chutzpah to claim market timing can't be done as it does to claim it can. I just don't trust myself to know how to do it, and that's all I need to stick with diversified and index funds, and to use strict mechanical criteria (not emotion) to add or lighten up on stocks.

Warren Buffett has said he could still easily beat the market if he had $5 million to invest instead of more than $50 billion, and I'm sure as hell not going to refute him or his track record.

 

[easysurfer]

Fine, have a consistently applied strategy. But you said something significantly different -- that if you market time at all, you must be confident you'll always get the timing just right:
Then, since no rational person could ever know for sure that he knows precisely when the market will turn up or down, then no one should ever try to improve on a random or fixed-interval strategy of when to invest. This goes far beyond the advice that one should follow a strategy consistently.

I didn't say anything about a system that you'll always get the timing right. But that since you are confident in your system, (why would someone invest in a system they doubt?) then go for it.

You're reading more into the words "just right" than needed. "Just right" is a warm and fuzzy. Not a 100% certainty, beyond reasonable doubt. There's no need to read more into it than needed.

If you expect a "perfect time" you'd we waiting a long long time.

Actually, when is the right time is the very argument against market timing. You need to know when to get in and out...a lot easier said than done.

Hope it makes sense to you now.

 

[haha]

Hope it makes sense to you now.

Best not to bank on it.

 

[Ed_The_Gypsy]

Hmmm.

There are certainly times when one asset class is more attractive than others. For example, if government bonds are at 0%, it is probably not a good time to buy them. Interest rates can't go below zero and when they do go up, the price of the bond will go down and you will have negative capital gains and no dividends. That is pretty much where we are today.

I have chosen an asset allocation and rebalance every year or two. However, my dividends go into a money market fund and sit until I decide what to do. This year, I will probably buy on weakness equities that pay dividends. BP looks really good to me right now.

I think this is different from market-timing, which I interpret as making a big bet on which way things are going to go in the short term. The OP is obviously thinking about doing exactly that.

I wind up making only small bets. Like Uncle Mick's testosterone fund. The big pot is still mostly index funds and I am happy with that.

If I had a big wad of cash for some reason and wanted to invest for the long term, I would still choose an asset allocation and commit it all at once. I would not make a big bet on one asset class or one stock. I ain't smart enough to hit a home run with one stock or one asset class.

Note: I am still in the accumulation phase.

 

[Ed_The_Gypsy]

In connection with that, Jeremy Siegel thinks that stocks are cheap today:
Jeremy Siegel: Stocks Are Cheap! (And Getting Cheaper) | Daily Ticker - Yahoo! Finance
Specifically, dividend-producing stocks.

 

[chinaco]

When is it ever clear that we are heading for a recession? Right now I'm hearing numbers like 40-50% chance. Must be nice to come up with numbers like that where you cant be wrong. Its like the weather man saying we have a 50% chance of rain. If it rains, he says "I told you so" and if it doesn't he says "there was only a 50% chance".

By the time the numbers come in that say we are in a recession, we have already been in one for months and the market anticipated it and has already dropped significantly.

Good point.


Right now the only part that seems to be clear is that DC is at a stalemate. The lack of cooperation could lead to a politically induced recession.

In late July... CEOs pleaded for cooperation in DC. In August, Zero net jobs.

Downward adjustment in growth projections.

Then there is the market volatility (investors trying to make up their mind about the near-term future).

Tough to ignore all of that. At the very least some people are thinking it is much more likely.