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Market Timing your 401k - Trick or Treat?Thursday, October 31st, 2019 | Mark Bras
If you are market timing your AA 401(k) you might have noticed that your 2019 performance could be as much as 15% less than the S&P 500. Additionally, you likely made monthly changes to your 401k investments. Assuming you expected to “Treat” your 401k with regular portfolio changes, the result more likely resembles a “Trick”.
Market timing is generally defined as moving financial assets based on past or predicted market trends. Because it is extremely difficult to predict the future direction of equity markets, investors who try to “time the markets” frequently underperform those who remain invested by following an Investment Policy Statement. In the long term, it is very difficult to successfully “time the markets”.
We regularly analyze “Active Management” portfolio performance and have determined that the long-term results often mirror the data published in several academic and professional studies. Actively managing a portfolio frequently results in lowered rates of return. The more actively an investment portfolio is being managed could have a direct correlation to the rate of under-performance.
American Financial Advisors does not follow market timing but rather apply a “Structured and Disciplined” Investment Philosophy. Discipline is extremely important when managing financial assets. As Mike Tyson so eloquently stated – “Everybody has a plan until they get punched in the mouth”.
At American Financial Advisors…
…we don't speculate. We invest.
…we Diversify – Not “Diworsify”.
…we focus on the Risk/Reward trade-off. There is no free lunch!
…we control those investment factors we can control.
If speculation is futile, and trying to choose winners is more often a loser's game, what can an investor do? The answer is to focus on what can be controlled - managing the costs of investing, reducing the impact of taxes, and taking a long-term view. We implement portfolios in a way that is cost-effective, tax-efficient, and above all, disciplined. An Investment Philosophy should lead an investor to follow these important aspects of managing investment assets: Diversification, Asset Allocation, Structure, and Discipline!
Disclaimer: Past results are not indicative of future returns. There is no guarantee that a diversified, structured and disciplined portfolio will result in higher returns. Each investor should determine their own risk parameters and invest accordingly.
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