It is the time to start and invest in the markets?

[disneysteve]

By your own definition, you are also using a crystal ball. How do you know underperforming areas are at a discount? Maybe underperforming areas are just poor areas to invest period. You time the market just like anyone else - you just choose a random day to do it on. It does not remove guessing from the equation at all - you just guess randomly.

That's a valid point. Any time you buy or sell an investment whether it is stock, bond, mutual fund, ETF, painting, coin, stamp or anything else, you are making some "guess" about the current value of the item and the potential future value.

My point is that nobody knows for sure what is going to happen - otherwise we'd all be wealthy as you said. That's why most advisers support the method that I'm suggesting. Investing a set amount on a regular schedule, also known as dollar-cost-averaging, and periodically rebalancing to return your allocation to your desired levels, greatly reduces the chances that you will buy at the peak or sell at the trough. It enables you to pick up more shares when prices or low and fewer shares when prices are high. It also enables you to lock in gains rather than deciding to hold on because you've decided the price will keep going up, only to see it crash soon after. Yes, rebalancing does have an element of randomness because if I rebalance on January 1 I'll get a different result than if I rebalance on July 1 or November 15. But it does remove the urge to gamble and "let it ride" even if one holding has grown to be an out of proportion holding in my portfolio. If my intent was to be 80% stocks and 20% bonds and a big rally has left me at 93% stocks and 7% bonds, I'm taking a lot more risk than I had planned. It is very easy to be blinded by rising prices. If you stick to a set rebalancing plan, you won't make the mistake of hanging in there and getting greedy.

Is it perfect? Nope. Nothing is. But I think if everyone followed this, they'd be a lot better off. I don't have stats in front of me but I've often read that the average investor's return is quite a bit lower than the stated return of the market or of individual funds because of how much they jump in and out of things without a good plan. It doesn't do you any good if the market returns 12% but your portfolio only returns 4% because you bought and sold at the wrong times.

[mcfroggin]

But I think if everyone followed this, they'd be a lot better off. I don't have stats in front of me but I've often read that the average investor's return is quite a bit lower than the stated return of the market or of individual funds because of how much they jump in and out of things without a good plan. It doesn't do you any good if the market returns 12% but your portfolio only returns 4% because you bought and sold at the wrong times.

Some individual investors will return less than the market and others will return much more.

I know that many advisors recommend rebalancing at random times. That is good advice for some and bad advice for others. If I was advising someone who knows nothing about the market and wishes to keep it simple, rebalancing is excellent. It is simple to understand and easy to implement. You have a broad range of investments that is closer to the general market. There is little emotion involved. You just stick to the plan and coast. It isn't a bad plan, but you are also much less likely to beat average returns.

For example, I have a brother that invests in 80% entertainment/electronic industries. He stays at the forefront of technology in only those fields. It is what he enjoys. No rebalancing because there is no balance at all. He kills the market yearly - averaging 50% even during the depression. This year he is up nearly 100%. He now emails me his transactions before they occur - at my request .I don't advise that others try to be like him. You can't just magically start pulling in returns of 50%. It takes a lot of time, effort, research, and RISK. On a bad day, he can lose tens of thousands of dollars. I've seen it happen. He is comfortable with those risks, and he is young enough to recover if needed. If he followed your rebalancing plan he would currently be MUCH worse off.

I personally merge rebalancing + funds in fields where I am more knowledgeable like biotechnology. I know that increases my risk, but it also increases my returns when I'm right.....or diminishes them when I'm wrong. I'm ok with this.

Every investment form is risky. Some people are more risky than others and prefer it that way for a reason. Random rebalancing definitely has its place, but it would not make everyone better off.

[disneysteve]

Random rebalancing definitely has its place, but it would not make everyone better off.

Fair enough. I won't disagree with that. There is a minority of investors who can and do beat the market over time and for them, active management beats passive investing. I would still maintain, though, that for the average Joe, trying to time the market and beat the market is a recipe for failure, or at least sub-par performance.

[couchrobt]

If you believe that you can do it and afford it and manage it.. then by all means just go for it. A few tips here and there and a good financial advisor and you will be fine.

[MaxPowers]

What do you think about regularly putting money into ETFs like Vanguard energy/REIT/Tech/Finance? I want to invest but do not have the time to constantly research and keep up with individual companies. I know I may not get as much gain, but at least it has a chance to work its way up.

[Slug]

What do you think about regularly putting money into ETFs like Vanguard energy/REIT/Tech/Finance? I want to invest but do not have the time to constantly research and keep up with individual companies. I know I may not get as much gain, but at least it has a chance to work its way up.

I think this is reasonable. I am doing just that during this decline....nibbling on ETF's for long-term holds.

[snafu]

MaxPowers: It depends on your age and risk tolerance. You need to be able to sleep at night. When the market gets this choppy, I tend to drop investment $$$ into my Dividend ETF whose top 10 holdings are stocks I would buy if I were truly wealthy. This week I'm waiting to see June 10th results.

[MaxPowers]

I am 26 so I have room for risk
What dividend ETF do you have? Vanguard's? What happens on June 10?
Also, looking at dividend ETFs, I usually only see them having like 2% dividends. Isn't this kinda low?

[snafu]

I'm Canadian, holding ishares, DJ Canadian Select Div. XDV-T YTD 11.09% and XFN-T which is Canadian Financials which have been remarkable. The problem with naming any specific investment is that while it's been excellent until now, I don't know what will happen going forward. I set stop loss parameters on major holdings...do you?

[thesmartnickel]

This past week was brutal. It is extremely difficult to time the markets so you are better off, in my opinion, investing a little bit over time. Going with diversified ETFs is probably the safest bet in the long-run, but if you want a lot of gains, stock-picking becomes extremely important, especially in a declining market.

[couchrobt]

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