Tags: time | market | bear | stocks

Individuals Really Can Time the Market

By    |   Friday, 22 Nov 2013 07:16 AM

Financial planners like to point out that no one can time the market. Technically, they are correct because no one can perfectly forecast every market turn.

However, there is no need to precisely call every market turn in advance. Selling after the top can still preserve wealth by allowing investors to miss most of the damage in a bear market.

Bear markets are generally defined as drops of 20 percent or more. Many investors withdraw a small amount of their retirement account balance every year for income. A 20 percent decline in value lowers income by 20 percent.

Simple techniques can help investors avoid a large drop in stocks. One of the simplest techniques is the 10-month moving average. A moving average uses only the most recent data to calculate an average. When the price falls below that average, traders can assume a bear market is underway.

In 2000 and 2007, this simple indicator would have told investors to sell about 7 percent below the bull market highs. In both cases, prices continued to fall by more than 50 percent. An investor with $10,000 would have had $9,300 after a 7 percent loss. They would have had less than $5,000 at those bear market lows.

Investors could get back into the market when prices move back above the 10-month moving average. The result would be small losses when the bear market starts and an account value that could be significantly higher than a buy-and-hold investment strategy.

Perfect timing is not possible, but it also isn't necessary to build wealth and maintain steady retirement income.

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MichaelCarr
Financial planners like to point out that no one can time the market. Technically, they are correct because no one can perfectly forecast every market turn.
time,market,bear,stocks
264
2013-16-22
Friday, 22 Nov 2013 07:16 AM
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