Larry Swedroe wrote a terrific piece for etf.com a few weeks ago called Better to Face Correction. He delivers a great no-nonsense take on trying to time your way around a correction:
“Even if you believe the probability of a correction is high, it’s far from certain. And when the correction doesn’t happen, the expected opportunity cost of having waited is much greater than the expected benefit.”
Markets move positively something like 70% of the time. That isn’t based on anyone’s predictions. That’s just statistics. There is no valuation metric to predict how markets will move that reliably beats this 70% statistic. Yet, at least one pundit calls for a market correction almost every day. Occasionally someone is right and there is a correction. But that doesn’t make the pundit right. More likely s/he was lucky, or just plain persistent. As my grandfather used to say, even a broken watch is right twice a day.
For example, Jim Rodgers has been calling for a massive market meltdown for 9 years. Eventually, he will be right, since market corrections do happen. This doesn’t make him worthy of any more newsprint or radio/TV time. Most “the end is nigh” predictions are proven wrong. And even when they are right, no one ever tells you when to get back in. This can make following the advice of pundits very expensive.
When you compare the long-term benefits of timing the market according to some pundit’s calls versus following a disciplined strategy of investing the same amount every month (aka dollar cost averaging) + holding on through all the zigs and zags, dollar cost averaging + holding wins the majority of the time. During the rare instances when dollar cost averaging + holding loses, it historically loses for just a relatively short period. And since dollar cost averaging means you are buying more shares at a lower price when markets are down, you’ll have more shares when markets eventually turn around, which is a beautiful thing!
Instead of directing your energy to timing the markets, why not focus on building a broadly diversified portfolio of appropriate asset classes? Turn your radio dial to a classic rock station and ignore the market and economic noise.