Seventy-five percent of financial advisors believe they can beat the market using tactical asset allocation strategies that shift money among different investments in an attempt to time the market according to a recent Jefferson National survey. The goal, of course, is to move out of an asset class before the decline and to invest in another asset class before returns begin to skyrocket. Yet, study after study proves that attempting to time the market is a loser’s game. For instance, the Investment Company Institute reported that bond funds had net inflows of $130 billion in 2011 and that stock funds had net outflows of $100 billion. Yet, the S&P 500 Index closed at 1099.23 on October 3, 2011, and was up 27.7% as of March 16, 2012. Unfortunately, those who fled equities will find it difficult to ever catch-up.
So often, these ultimately harmful tactical portfolio moves are fueled by emotions — fear and greed — whereas an asset allocation plan is rationally based upon an investor’s goals and risk tolerance. I continue to believe that, in all markets, an advisor’s biggest value is not to attempt to predict the markets, but to help clients establish a solid investment plan based upon their long-term goals and to counsel them to stay the course while the market zigs and zags.