Investing is often seen as a strategic game in which timing is everything. Many investors believe they can predict market movements, getting out when things look bad and jumping back in when they look good. The reality is that market timing is difficult, if not impossible, and good returns are not dependent on market timing.

Moreover, active trading can lead to increased fees, expenses and taxes — some of the very things that we want to reduce and can control. After all, it’s not what you make that’s important; it’s what you keep!

Focusing on just returns ignores the core reason are often investing: to fund our lives. Having cash and income for today and growth for the future is the key to balancing needs now and for the rest of our lives.

A sustainable and effective strategy for accomplishing this is to adopt a disciplined approach to proactive rebalancing, which focuses on maintaining a diversified portfolio aligned with your goals and adjusting it based on changes in your personal situation, market conditions and tax laws. Our team is here to align your financial planning with your overall goals and vision, while taking advantage of current market and economic conditions.

The Potentially High Cost of Trying to Time the Market

Market timing is the practice of making buy or sell decisions about financial assets by attempting to predict future market-price movements. The allure of market timing is understandable; who wouldn’t want to avoid downturns and maximize gains by entering and exiting the market at the perfect time? However, as mentioned, market timing is incredibly difficult, if not impossible, to execute consistently.

Investing is a long game. Staying invested through market highs and lows is much more likely to generate competitive returns than attempting to time the market, especially over longer periods of time.

Market timing is often driven by fear when things move down and greed when they move up. The results can be disastrous. Research has shown that missing just a few of the market’s best days can significantly impact long-term returns. These best days often occur during periods of high volatility, when market timers are most likely to be out of the market.

In fact, 78 percent of the stock market’s best days occur during a bear market or during the first two months of a bull market. If you missed the market’s 10 best days over the past 30 years, your returns would have been cut in half. Missing the best 30 days would have reduced your returns by a staggering 83 percent.

This is why we believe the most effective strategy is to stay the course and focus on your vision — not on the inevitable market fluctuations.

Financial markets are influenced by a myriad of factors, including economic indicators, geopolitical events and investor sentiment. These factors interact in complex and often unpredictable ways, making it virtually impossible to forecast market movements accurately on a consistent basis.

The chart below shows the potential for significant losses when investors try to time the market.

Market timing requires making investment decisions based on future expectations. This can lead to emotionally driven decisions, such as selling in a panic during market downturns or buying impulsively during rallies. Emotional investing often results in poor decision making and lower returns.

“Buy and Hold” Can Cause Missed Opportunities

The buy-and-hold investment strategy, which involves purchasing assets and retaining them over the long term regardless of market fluctuations, is grounded in the principle that, despite short-term volatility, markets generally appreciate over time. However, this approach may overlook opportunities presented by market volatility.

In today’s investment landscape, many firms employ algorithms and models that apply a one-size-fits-all approach to clients’ portfolios. These systems often fail to consider individual needs, personal visions, tax situations and estate-planning requirements.

Effective financial planning demands more than automated solutions; it requires a nuanced approach tailored to each client’s unique circumstances. Our dedicated team of 28 professionals is committed to delivering personalized strategies designed to optimize your financial success.

The Advantages of Proactive Rebalancing

While the buy-and-hold investing strategy provides a solid foundation, it can sometimes fall short of optimizing returns under evolving conditions. Proactive rebalancing offers a more dynamic alternative by regularly adjusting your portfolio to reflect changes in personal circumstances, market conditions, and tax laws.

You already know that rebalancing your portfolio refers to the process of returning the values of your portfolio’s asset allocations to the levels defined by an investment plan — levels that ideally will match your tolerance for risk and desire for reward.

Proactive rebalancing takes the concept of rebalancing a step further. It helps ensure continued investment alignment with long-term market gains while helping you avoid the pitfalls of market timing. By frequently reviewing and adjusting your portfolio, you can capitalize on current market conditions — such as acquiring undervalued assets at lower prices or selling overvalued assets to realize gains.

Also, proactive rebalancing has the potential to enhance tax efficiency. For instance, it can involve selling underperforming investments to offset gains elsewhere in your portfolio, thereby reducing your overall tax liability. This approach also helps ensure that your portfolio remains aligned with your financial goals and risk tolerance, adapting as your situation evolves — whether you are nearing retirement or experiencing changes in income.

Conclusion

I believe proactive rebalancing is a much more effective investing strategy than market timing or “buy and hold.” This strategy combines the stability of disciplined investing with the flexibility to adjust to changing conditions, enhancing potential long-term returns and helping ensure tax efficiency.

Our team is dedicated to aligning your financial planning with your overall personal vision. This includes helping preserve assets, tax planning, estate planning and wealth management — all without relying on market timing. Let us help you navigate the complexities of financial planning to achieve your long-term goals. Feel free to reach out to me personally or to our team whenever we may be of service.

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Randy Carver, CRPC^®, CDFA^®, is the president and founder of Carver Financial Services, Inc., and is also a registered principal with Raymond James Financial Services, Inc. Carver Financial Services, Inc., was established in 1990 with the vision of making people’s lives better — clients, team and community. With this mission, Carver Financial Services has grown to be one of the largest independent financial services offices in the country, holding $2.9 billion in assets for clients globally, as of August 31, 2024. Randy and his team provide Personal Vision Planning for their clients.

You can reach Randy directly at randy.carver@raymondjames.com and in the office at (440) 974-0808.

Any opinions are those of Randy Carver and not necessarily those of Raymond James. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.

Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. Rebalancing a non-retirement account could be a taxable event that may increase your tax liability.

This information is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. All opinions are as of this date and are subject to change without notice. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including asset allocation and diversification. Past performance is not a guarantee of future results.

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary.