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Barry Ritholtz. reminds folks at all knowledge levels about market timing skills or lack of.......
The Ritholtz Wealth Management gang produces some useful content.
A Wealth of Common Sense
The Big Picture
Of Dollars and Data
The Irrelevant Investor
I’m not as opposed to timing as he seems to be. If all attempts at timing are futile, than little need to keep abreast of markets, investment trends, valuations and peaks and troughs. Hell, throw everything at the S&P and go fishing. Turn off Bloomberg & CNBC. Cancel subscription to Barron’s and the WSJ.
Timing need not be “all in” or “all out”. It can be lightening up in frothy markets. Rebalancing once or twice a year. Favoring one particular style, sector or geographic area over another. While Warren Buffett would decry “timing”, he’s been known to build huge cash positions when equity valuations are high. And, he’ll move $$ around favoring pockets of opportunity (ie railroads). So he doesn’t always walk the talk.
My 2 cents worth.
On the other hand, tactical asset allocation (TAA) involves changing allocations suitably according to market assessments, and rebalancing simply adjusting to strategic/fixed asset allocation.
Thank you @yogibearbull
Makes sense. I added a 5-10% “Speculative” sleeve several months ago. It’s currently just under 8% of my holdings. Others might call that a tactical position. It’s a place where my overall assessment of where various markets are can be counted into the otherwise static allocation format. I realize this is not for everyone and all circumstances.
Best of luck,
- making these little course corrections in you portfolio because you think you know whats going to happen next is a fools errand.
- for the vast majority of amateur investors and a significant majority of professionals, market timing is all but impossible.
- the typical mom and pop investor... for the most part, the more they do the more worst-off their returns are.
Those were his words paraphrased a bit.
Is it the view of @MikeM that the very investor who designed the portfolio to begin with is somehow engaging in risky or foolish behavior to alter, modify or embellish his original plan based on new information or perhaps a different “playing field” than on the day he drew that plan up?
Let’s say he had 50% nominally allocated to equities before a 30% market sell-off. Would the investor not be wise to increase his equity exposure - upping the allocation to 55 or 60% afterward? Or, in the case of extraordinarily narrow high yield credit spreads developing, would it not be prudent to shift some HY holdings into investment grade bonds or cash? Should deep value or EM stocks look cheap after years of underperformance, would you fault someone who had earlier avoided them for adding some to their portfolio?
There are allocation funds, as some have observed, who do this for you. That’s a good alternative. But these tend to have very large asset bases and need to deal with ever changing inflows and outflows . Changing allocations for them is a bit like changing course for an oil tanker. The individual investor is far more nimble. Not to say one approach is better than the other - just that they are different.
Byron Wien's Ten surprises for 2022 -
Tinkering has gotten such a bad name, I’m inclined to avoid those threads in the future that ask “What recent moves have you made or considered?”
Maybe stay “in the closet” …
True, I don't know of any allocation fund based on stocks and only TIPS, but there may be good reasons for that.
Many TDFs do include TIPS. Vanguard TDFs switched from IT-TIPS (too volatile) to ST-TIPS (to capture most of the inflation effects) years ago.
I feel it is not, but along with diversification, part of fundamental portfolio management.
Best of luck,
I don't consider rebalancing to be tinkering.
Rebalancing is a strategy implemented to control overall portfolio risk.
An investor may have a target allocation of 60% equities / 40% bonds.
After equities appreciated, the investor would sell equities and purchase bonds
to return to the target allocation (assuming rebalancing threshold is reached).
Outside of major market events, portfolios usually shouldn't be rebalanced too often -
maybe annually or biennially.