After being brutalized by the twin bear markets that have marked the past 12 years in the stock market I’ve heard from many folks recently interested in “timing the market.” They want to own stocks when they go up and sell them before the go down. I tell them all the same thing: forget it. This is a LOT harder than it sounds.
Most financial advisers will tell you, “you can’t time the market.” This is true. Warren Buffett may be able to but YOU can’t time the market. When you try to time the market you end up buying high when you fear missing out on an incredible opportunity that has already tripled and selling low when you’re filled with despair and regret after losing your shirt. Am I wrong? Don’t feel bad; science has proven that this is just human nature. It’s in your genes.
There is a way, however, to “time the market” that’s so easy even a kid can do it. All you have to do is rebalance your investment portfolio on a regular basis by trimming your winners and adding to your losers. That’s it.
Now every trader in the game will tell you this is bad advice. In fact, they’ll tell you just the opposite: to add to your winners and cut your losses. In trading this is good advice. But in investing it’s just the opposite.
And as Jason Zweig points out over the weekend, this simple strategy of regular rebalancing will add 0.25-0.5% to your returns every year. So if you’re using the index ETFs I recommend in “FIRE Wall Street” and getting the market rate of return with a total cost of as little as 0.04%, rebalancing will push your returns above and beyond the market rate.
This way you’ll beat the vast majority of professional investors in the world year after year. Congratulations, you just became an investing superstar.