Market_timing_with_your_mutual_funds

							Market timing with your mutual funds

Word Count:
450

Summary:
When investing in bonds, stocks, or mutual funds, investors have the
opportunity to increase their rate of return by timing the market -
investing when stock markets go up and selling before they decline. A
good investor can either time the market prudently, select a good
investment, or employ a combination of both to increase his or her rate
of return. However, any attempt to increase your rate of return by timing
the market entails higher risk. Investors who actively try to time the
market should realize that sometimes the unexpected does happen and they
could lose money or forgo an excellent return.


Keywords:
mutual funds


Article Body:
When investing in bonds, stocks, or mutual funds, investors have the
opportunity to increase their rate of return by timing the market -
investing when stock markets go up and selling before they decline. A
good investor can either time the market prudently, select a good
investment, or employ a combination of both to increase his or her rate
of return. However, any attempt to increase your rate of return by timing
the market entails higher risk. Investors who actively try to time the
market should realize that sometimes the unexpected does happen and they
could lose money or forgo an excellent return.

Timing the market is difficult. To be successful, you have to make two
investment decisions correctly: one to sell and one to buy. If you get
either wrong in the short term you are out of luck. In addition,
investors should realize that:

1. Stock markets go up more often than they go down.

2. When stock markets decline they tend to decline very quickly. That is,
short-term losses are more severe than short-term gains.

3. The bulk of the gains posted by the stock market are posted in a very
short time. In short, if you miss one or two good days in the stock
market you will forgo the bulk of the gains.

Not many investors are good timers. "The Portable Pension Fiduciary," by
John H. Ilkiw, noted the results of a comprehensive study of
institutional investors, such as mutual fund and pension fund managers.
The study concluded that the median money manager added some value by
selecting investments that outperform the market. The best money managers
added more than 2 percent per year due to stock selection. However the
median money manager lost value by timing the market. Thus, investors
should realize that marketing timing can add value but that there are
better strategies that increase returns over the long term, incur less
risk, and have a higher probability of success.

One of the reasons why it is so difficult to time correctly is due to the
difficulty of removing emotion from your investment decision. Investors
who invest on emotion tend to overreact: they invest when prices are high
and sell when prices are low. Professional money managers, who can remove
emotion from their investment decisions, can add value by timing their
investments correctly, but the bulk of their excess rates of return are
still generated through security selection and other investment
strategies. Investors who want to increase their rate of return through
market timing should consider a good Tactical Asset Allocation fund.
These funds aim to add value by changing the investment mix between cash,
bonds, and stocks following strict protocols and models, rather than
emotion-based market timing.