Your Questions, Answered: Market Timing
On this week’s episode of Your Questions, Answered Nolan Kamerer and Brian Leitner discuss market strategies, and answer the following question:
“If the market is doing well, should I move to cash and wait for a market correction?”
Do you have questions you’d like answered? Email them to [email protected], and we’ll provide answers.
Brian Leitner: You have questions, we have answers. Back with another quick clip. My name is Brian Leitner, and today I’m joined by Nolan Kamerer, a senior wealth advisor form our Cincinnati Ohio office. Nolan thanks for being here today.
Nolan Kramerer: Yeah, I appreciate it Brian, thanks for having me.
Brian: So Nolan a question that came in and we see this from time to time. It always goes something like this, the market’s at all time highs or when the market’s doing really well for a period of time, I’m thinking about taking some chips off the table. What about going to cash now, waiting for that market correction, so I don’t lose any money and I could really take advantage of a potential upside in the future? What are some of your thoughts regarding this strategy?
Nolan: Yeah, it’s a great question. It’s one that I hear fairly often from clients. The challenge is you know, there are a couple of things that need to go right if you’re going to execute on that type of strategy and they’re really difficult to execute on. So when we think about that, when we start with client relationships, the first thing is setting that strategic or long-term asset allocation target, and really the key to being successful is adhering to that or sticking to that longer term plan. When you get into this idea of timing the market, the first challenge is you have to get two things right, and those two things are really difficult. When’s the right time to get out? And a lot of times, like you mentioned, at all time highs. Those questions start to come up and in many times, despite the fact that the market on average has a 10% correction every year. The timing of getting that right is really challenging. Additionally, if you do happen to get that right, you then have to get the timing correct on when to get back in. And as we’ve seen over time, when the markets are going down, investors have a very hard time getting comfortable with buying stocks. And I’ve talked to a lot of clients and prospective clients who back in 2008, 2009, experienced this exact thing. They sold out at maybe not the opportune moment and then continued to struggle getting back into the market. So 2009 was a really strong year, 2010 was a really strong year and clients had a hard time or investors have a hard time pulling the trigger and making that purchase back into the market. So, you know the two ends of that, selling at the right time and then buying back in at the right time are extremely challenging. Some of the other research that we’ve done too, is looking out over a longer period of time. Strategas Research Partners, who does a lot of great work for us looked at some data going back to 1950. And if you invested in the market from 1950 through 2019, the average return was around 7.5%. If you tried to play that timing game and simply missed out on the five best days each year, your return went from 7.5% to 5%. And when you think about 2.5%, that might not seem like a lot, but if you compound that over that long of a time period investors who play that timing game can miss out on a massive amount of returns. So the bottom line is our focus maintains, you know, looking at strategic long-term plans with the ability to make some tactical adjustments over time, but really understanding that if we are going to change that strategic allocation and make a larger shift in the balance of our client’s portfolios it’s because it aligns with a bigger change in their longer term plan, not this idea of trying to time the market get in and get out at the right times.
Brian: That’s great feedback. Now, and obviously nobody has a crystal ball. I think what’s obviously important is making sure that the asset allocation reflects one’s risk to accomplish one’s goals and things of that nature. And the other, comment maybe I’d throw in there is just our own investor biases. We all have them, like we all have blind spots. And I think, that’s probably one of the reasons that many advisors actually have their own advisor just for these reasons, right? That whole self sabotage and making sure that it’s not the cobbler’s shoes scenario, but that they’re, doing what they need to do for their own planning and have that guidance. So, Nolan, completely agree with everything you said and greatly appreciate you being here today to answer this question.
Nolan: No, absolutely. We’re excited to help clients achieve those long-term goals and, you know, that’s the important focus there.
Brian: Thanks Nolan. And if you or anyone else has questions they’d like answers to, they can feel free to email us at [email protected]. Thanks for watching.