Dissecting 3 Market Timing Strategies, Ep #142
Is it ever a good time to take your money out of the market? I’m sure everyone was tempted to jump ship when they saw the S&P 500 drop to negative 37.4%. Numbers like those can make anyone reconsider their investment strategy. Will we be better off if we step out of the market for a while? In this episode of Best in Wealth, I dissect 3 market timing strategies. I’ll cover which yields the most favorable results—and land on one strategy that outperforms the rest.[bctt tweet="In this episode of Best in Wealth I dissect 3 Market Timing Strategies—and share which gives you the best return. Check it out! #wealth #retirement #investing #PersonalFinance #FinancialPlanning #RetirementPlanning #WealthManagement" username=""]Outline of This Episode[1:12] When people say “I told you so”[4:07] Stick to a set of fundamental principles[9:59] The two decisions you have to make[11:36] Market timing strategy #1[14:22] Market timing strategy #2[16:31] Market timing strategy #3[19:17] The buy and hold strategy[21:15] What can we learn from these numbers?[23:01] How do we maintain control?Market Timing Strategy #1If we owned stock in the market from July of 1926 to December 2019, we’d have an annualized rate of return of 9.57%. In the following strategies, we will be comparing the approximate annualized rate of returns to that average.The first timing strategy involves taking your money out when the market is down 10%. Then, you wait either 100, 200, or 300 days to inject your money back into the market. After each time-frame, this is what the returns look like:100 Days: Annualized rate of return of 7.11%200 Days: Annualized rate of return of 6.67%300 Days: Annualized rate of return of 5.89%As you can see, these numbers are far below the average of 9.57%. We need a timing strategy that outperforms these numbers.Market Timing Strategy #2In this strategy, we hold our money until we hit bear market territory—a 20% drop from the high. If we pulled our money out of the market and reintroduced it at:100 days: 6.8% annualized rate of return200 days: 6.08% annualized rate of return300 days: 5.75% annualized rate of returnThis strategy still isn’t faring any better—let’s move on to the 3rd.[bctt tweet="One market timing strategy consists of pulling your investment out of the market when it’s down 20%. Listen to this episode of Best in Wealth for a full explanation! #wealth #retirement #investing #PersonalFinance #FinancialPlanning #RetirementPlanning #WealthManagement" username=""]Market Timing Strategy #3You’ve waited almost as long as you can bear. The market has dropped 30% and everyone feels the need to bail. We want to get to safety and wait for better times. So what happens if you yank your money at this point?100 days: 8.71% annualized rate of return200 days: 8.55% annualized rate of return300 days: 8.66% annualized rate of returnAlright, so this is by far the best strategy. It’s a decent rate of return—but still over a percent away from that 9.57% average that we want to be hitting. So what do you do?The BEST strategy: Buy and HoldAs much as it pains you to think about it, the buy and hold strategy is your best bet. In fact, leaving your money in the market will add up to hundreds of thousands of dollars throughout your lifetime of investing. Granted, these are all hypothetical numbers based on looking at the indexes, but the concept holds true.Financial downturns are unpleasant for everyone, but investors are trained to reduce an exasperating circumstance by adhering to our core principles. A famous quote of unknown origin goes: “You don’t rise to the occasion, you sink to the