When assets are moved in the portfolio, based on a forecast or prediction about the future, this is market timing. For example, you’ve become convinced by economic forecasts that the market is heading down over the next twelve months.
You decide to sell your stocks and put all of the money into cash. That is market timing!
Market movements are random. No one knows what the market will do tomorrow or over the next twelve months. It bears saying again:
Nobody knows with any degree of certainty what the future will bring and if they did they wouldn’t tell you. They would just invest their own money for a ‘HUGE’ profit. The reason they don’t do this is because they have no idea what direction the markets will move in the short term.
These charlatans need you to move your money and they will collect fees. Don’t forget Wall Street doesn’t make money picking the right investments they make commissions/fees on every trade you make. Therefore they need you to believe their predictions.
They need you to believe that someone can tell them what to do ‘right now’ to earn a profit. What they don’t tell you is that the markets are random and unpredictable.
Let’s look at another example. Because of a war, you or your stockbroker predict that international stocks are going to lose big, so you move all of your stocks into the United States. Once again, this is market timing.
This doesn’t “feel” like speculating. It often feels like wise stewardship of your assets. But in reality it is speculating with your money.
If over the last two years, you have watched your portfolio take large losses in any one asset category, and every news program, investing magazine and stockbroker says this is the time to get out – it feels like prudent investing. Nothing could be further from the truth.
In most cases, if not all, staying disciplined and staying the course is the best thing to do. That assumes that you currently have a prudent mix of assets. This is a huge assumption, because most people don’t.
Fire your broker/agent and hire an investor coach/fiduciary adviser.