New Financial Plan

It seems like timing the market, if you could really do it consistently, would be the single best way to grow rich.  If you follow most mainstream personal finance resources you hear that it is virtually impossible to make that work.  If you dabble in it and test your luck you most likely will find that they are right.  Many things I have done, however, have involved a bit of timing.  It hasn’t always worked perfectly.  It hasn’t made me rich (yet).  But I do believe it has worked in my favor.  Below are a few of my financial timing experiences.

Real estate and mortgage loans.  We bought our house early on.  Housing was moving up quickly in the area and we wanted to own.  It was a stretch for us at the time that we considered worth the small risk.  Within a few years of buying we had earned a few promotions at work and the housing market had kept rising.  Then mortgage rates moved lower, bounced a bit, and moved lower again.  We refinanced and cut our rate by 2%.  Now we have a decent house with a very affordable payment.  Our timing in both buying and refinancing worked out very well.

Timing the market.  Stocks have been volatile, hitting all kinds of highs and lows over the past several years.  I remember when I starting investing in IRAs.  People told me not to put any money in stocks because they were too risky.  That was short term thinking.  Down stocks have been good to me, and I have enough time ahead that they are very likely to do well.  We try to max out our contributions by the deadline, to dollar cost average by spreading contributions out.  I also try to beat the market by buying lower.

Not to say all of our moves worked out, for example the money in a real estate fund we own, I believe is about even with where I started while the stock market is up since then.  At the same time the emerging markets we picked up a few years ago have beat the market index.  By putting more money there we missed out on having a larger portion of our investments in that winning fund.

I guess In my mind this version of market timing is really just reallocation taken a little further.  Instead of picking an allocation and sticking to it, I adjust the allocation too.  Maybe it’s along the lines of shifting the allocation of stocks vs bonds as you approach retirement.  Maybe it’s like moving to fixed income investments after you have a sum that you want to live off and protect.  Do you think in either of those cases your situation determines what the market will do?  It doesn’t.  Is it the market determining what you will do?  Then you are timing the market.  No, in either case it is risk as the deciding factor.  Those moves are simply to reduce exposure to risky investments while protecting principal or cash flow.