Personal Finance: Whats the danger of using a market timing strategy?
The goal of a market timer is to enter the market when it is rising, and exit when it is falling. While the strategy sounds appealing, it is difficult to execute, since no one has been able to devise a system that can tell in advance if the market will rise or fall. Market timers therefore tend to follow the trends, bailing out after the market has started to fall, and jumping in after it has started to rise. However, the stock market movements are jerky, not smooth, and allow little time for even the most prescient market timer to act. Thus, one of the major risks of this kind of strategy is that it may have an investor out of the market when the bulls stampede. Probably the biggest risk of a market timing strategy is that a few missed bull markets can negate the long-term return advantage stocks have historically provided. And market timing strategies sometimes miss the boat. In recognition of this all too familiar trait, investors should refrain from full-bore timing strategies that
