An email dropped in my in-box tonight from Mike Causey at FederalNewsRadio.com. The title of the post was, “Timing the stock market: Did you predict Monday’s crash?”. Click the link to read the post.
First off, members of GrowMyThriftSavingsPlan.com received an email Alert at 11:30 on Monday morning, 29 January, informing them that my allocation was changing from 100% stock funds to 50% C fund, 50% G fund. Members who acted on that alert sold at Monday’s closing price of $2853.53 on the S&P500 (C fund). Today the S&P500 closed at $2581.00. That’s a 10.55% decline in a matter of a week and a half. Members who acted on the alert avoided half of the decline while keeping half of their funds in play for the eventual recovery rally. I actually answered the question in yesterday’s Jerry’s Blog post. On the face of it, the answer to the question is yes.
The real answer is that the question is very misleading. What exactly does it mean to “Time the Stock Market”? There is a very big difference between market timing and managing risk. Conventional financial planners generally lump both concepts together for retail investors (people not deemed sophisticated enough to understand the distinction). If you are an Accredited Investor, i.e. you generally have more than $500,000 to invest, financial advisors will take you on as a client and use both market timing and risk management techniques to grow your account (an theirs).
“Market Timing” is trying to sell stock at the top and buy at the bottom. Financial Advisors with high net worth clients do this every day, especially on days with very high volatility like this week. Given the restrictions inherent in TSP, having your trade submitted by noon to get that day’s closing price and 2 reallocations per calendar month, market timing is not possible within TSP. Having said that, risk management is VERY possible and can be extremely effective over the long run to maximize your gains and minimize losses in TSP.
In yesterday’s Jerry’s Blog post, I explain why I made the reallocation last Monday and why I moved from 100% stock funds to 50% C fund and 50% G fund. Utilizing price charts and technical analysis, I explain the reasons for the move in detail with respect to long term risk management. You should check it out!
If you want to know when I make the next reallocation in my personal TSP account, become a member of the site by hitting the link below. At $12 per month or $120 per year, consider it a very inexpensive insurance policy against big losses to your TSP account!
No one has a crystal ball. No one knows if this week was a flash in the pan or the beginning of a long term down trend. Risk management is the name of the game until the market confirms a continuation of the trend or a new down trend. Volatility will certainly continue in the short run. Stay tuned…