The recent market timing threads seem to have all ended, or are in the process of ending, with decidedly mixed results. I seem to remember at least one case of a market timing winner, whereas other posters have sold only to buy back in after the stock market has reached new highs.
I guess the only conclusion we can come to based on a handful of anecdotal cases is that market timing is rather difficult to pull off successfully, which is something that few of us have ever doubted. But all of these market timing experiments shared one thing in common - significant changes in asset allocation. Perhaps it's not essential to change asset allocation to make a market timing move. The Roth conversion thread that I participated in got me thinking that a relatively low risk way of making a bet on future stock market direction is to switch the location of one's stock holdings from a Roth IRA to a tax deferred account and back again. If you sell from one account and repurchase identical securities in the other, you can pull off a switch without changing a penny of your asset allocation. But you have changed your expected after tax profit. In general it's best to hold stocks in a Roth IRA and bonds in tax deferred because in the long run stocks tend to outperform bonds, so goosing the performance of the Roth while restraining the growth of tax deferred will minimize your future tax liability.
So the obvious tactic, if you expect a stock market downturn, is to temporarily switch holdings so that bonds are in the Roth and stocks are in tax deferred. If you're right, any losses in the stock market will be reflected in a lower value of your tax deferred accounts, thereby saving you some taxes down the road. The nominal value of your portfolio hasn't changed, just the adjusted after tax value. So you aren't putting any "real" money on the line. And as we saw in the Roth conversion thread, future taxes are uncertain in any case and often fall to the heirs to pay, not the retiree.
Has anyone tried this? Was it successful? I inadvertently used it in 2008-2009, when for completely unrelated reasons I had DW's Roth IRA mostly in bonds during late 2008 and mostly stocks in early 2009. It came out of the bear market with hardly any losses and exploded in value with the recovery. Most of my losses in 2008 were in my tax deferred accounts. So I guess you could call this accidental market timing. It wasn't intentional, but it worked out very well.
I guess the only conclusion we can come to based on a handful of anecdotal cases is that market timing is rather difficult to pull off successfully, which is something that few of us have ever doubted. But all of these market timing experiments shared one thing in common - significant changes in asset allocation. Perhaps it's not essential to change asset allocation to make a market timing move. The Roth conversion thread that I participated in got me thinking that a relatively low risk way of making a bet on future stock market direction is to switch the location of one's stock holdings from a Roth IRA to a tax deferred account and back again. If you sell from one account and repurchase identical securities in the other, you can pull off a switch without changing a penny of your asset allocation. But you have changed your expected after tax profit. In general it's best to hold stocks in a Roth IRA and bonds in tax deferred because in the long run stocks tend to outperform bonds, so goosing the performance of the Roth while restraining the growth of tax deferred will minimize your future tax liability.
So the obvious tactic, if you expect a stock market downturn, is to temporarily switch holdings so that bonds are in the Roth and stocks are in tax deferred. If you're right, any losses in the stock market will be reflected in a lower value of your tax deferred accounts, thereby saving you some taxes down the road. The nominal value of your portfolio hasn't changed, just the adjusted after tax value. So you aren't putting any "real" money on the line. And as we saw in the Roth conversion thread, future taxes are uncertain in any case and often fall to the heirs to pay, not the retiree.
Has anyone tried this? Was it successful? I inadvertently used it in 2008-2009, when for completely unrelated reasons I had DW's Roth IRA mostly in bonds during late 2008 and mostly stocks in early 2009. It came out of the bear market with hardly any losses and exploded in value with the recovery. Most of my losses in 2008 were in my tax deferred accounts. So I guess you could call this accidental market timing. It wasn't intentional, but it worked out very well.
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