Timing the market with a selling strategy could be beneficial during an election year. Emotions and markets can be volatile during election years --one could probably argue it’s a good time to close up shop and return later.
That, in a nutshell, would be timing the market. Warren Buffett would probably warn against this rationale as it is not the philosophy of a long-term investor.
Wikipedia defines market timing as:
the strategy of making buying or selling decisions of financial assets (often stocks) by attempting to predict future market price movements. The prediction may be based on an outlook of market or economic conditions resulting from technical or fundamental analysis.
Timing the Market Vs. Buy and Hold
I would consider myself more of a buy-and-hold investor versus a market-timer. While I do rely on certain professionals like the management team at American Funds to perform some market timing for me and my clients, for the most part, I’m a buy-and-hold (a.k.a. passive) investor. However, it is essential to know that I do appreciate both strategies.
While the late Jack Bogle and Warren Buffett have long spoken fondly of the buy-and-hold, we all sell eventually. And when do we sell? During an upcycle? During a down cycle? Or maybe six months from retirement? It really just depends, doesn’t it?
The Strategy of Rebalancing
As a buy-and-hold investor, I typically will set up a multiple-asset portfolio and then rebalance annually to maintain specific positions. A couple of things are accomplished by the strategy of rebalancing.
1) original portfolio allocations are re-tuned to the original calibration
2) Some stocks or bonds that have gained are sold to purchase ones that have not. This makes for buying low and selling high.
The strategy of rebalancing, while usually conducted within the scope of a buy-and-hold portfolio, is still a form of active management. You can’t say that you are 100% passive— buy-and-hold investor— if you are making a handful of modest changes every year. However, based on a multitude of research, rebalancing can be one of the best ways to both decrease risk and increase return over the long haul.
What Should You Do?
Shakespeare would say follow your heart. I would say follow your convictions. As with any complicated endeavor--and I believe investing to be a complicated endeavor--you have to know your business. You have to read, you have to study, and you have to put some thought equity into what style of investor you are.
Once you have educated yourself and added to that guidance from a financial professional, you should be ready to go for the election year.
If you need help processing the current economic and political landscape as it pertains to your portfolio, please feel free to give me a call. I can be reached at (910) 448-1450.
About the Author
Jeff Headrick is an independent financial planner and wealth manager with Inspire Financial Planning. When Jeff was still in his teens his father died unexpectedly. While his father was a hard worker and a good provider, he did not have the best financial plan in place when he died.
This left his family at a tough financial crossroad. This personal experience, coupled with being inspired by Sir John Templeton, Warren Buffett, Dave Ramsey, and the laws of compound interest, prompted Jeff to enter the financial services industry in 1999. He has been helping people with their financial planning ever since.
Jeff lives in Wilmington, NC with his wife and two children. He spends most of his spare time just across the Intracoastal Waterway in Wrightsville Beach, enjoying the beauty of the NC Coast.
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