While it’s pretty consistent advice to not time the market, an opinion piece in Bloomberg suggests that investors attempt to time the market at least once, not by buying in or selling out completely but by shifting allocations to potentially bolster returns significantly in the short and long term.
If you have a traditional 60/40 split in your portfolio, for example, the article advises adjusting stock allocation down to 50% at the moment when the market is buoyant and going up every day. That’s because it’s usually at this time, when investors are feeling confident and self-congratulatory, when their position starts to falter. Instead of riding that high, take a step back and reduce risk before you get knocked off your high horse. On the flip side, when things aren’t going well and you’re feeling despondent about your holdings, that is actually the time to step up your risk factors and increase stock allocation to 70%. That will give your portfolio more exposure when the market rallies, which it eventually will.
While most experts say that timing the market is an impossible feat, it’s actually possible to do by staying dialed into big shifts in sentiment and making small tweaks to your portfolio in response. But because it involves forcing investors to act against their intuition, it becomes a greater challenge. Even Warren Buffett has offered this advice, saying that successful investors “must be fearful when others are greedy, and greedy when others are fearful.”
However, this doesn’t mean investors should start actively trading, the article makes clear. And while the recent downturn doesn’t qualify as an extreme in sentiment, it would behoove investors to pay close attention to shifts in sentiment by talking to friends and neighbors about how they are doing in the market. If they are gaining or losing oodles of money in the market, that’s an indication that it’s time to shift allocations. By letting sentiment guide your decisions rather than trying to time the market precisely—having self-awareness so that your actions are influenced by reason and not emotion—you could achieve much better returns in the long run.