Schultz Financial Management
   

   
 

 

 

 

 

 

 

 

 

 

 

 

Market Timing Perspective

 

Market timing is controversial.  It is generally considered as an attempt to outperform a traditional "buy and hold" strategy of investing in stocks by switching entirely between stocks and bonds (or cash) at optimal times.

 

While the 1990s have generally favored a "buy and hold" strategy, the recent bear market that began in 2000 has favored a "timed approach" over the buy and hold strategy.

 

While we believe that a market timing strategy is not necessarily appropriate for all investors,  it may be worth consideration for a portion of your investment portfolio.  

 

For stocks, we view a "timed stock" allocation" as an "investment strategy" that can be used to supplement a core position of quality stocks (or stock funds) in order to reduce overall stock market risk and potentially enhance the overall investment return.

 

Similarly for bonds, we view a "timed bond" allocation as an "investment strategy" that can be used to supplement a core position of high quality bonds (or bond funds) in order to reduce "interest rate risk" and "credit risk" and potentially enhance the overall investment return.

 

 

"Market Timed" Investment Strategies

 

We manage individual "market timed" stock and bond folios tailored to our clients investment goals.  For each account, we monitor the holdings daily and follow a strict discipline for making subsequent changes to the account in order to reduce risk and enhance performance.  For more detailed information on any of our managed accounts, click on the corresponding investment strategy below.

 

Our Timed Stock Fund Folio is an actively managed folio that engages in market timing using stock mutual funds or exchange traded funds (ETFs).  The object of this folio is to invest in stocks that will provide capital appreciation during stock market up-trends, while limiting losses during down-trends.  During periods of overall stock market weakness, this portfolio will switch to a money market fund in order to preserve capital and enhance overall performance.  This folio will normally invest in one third allotments of varying stocks index funds or money market.

 

Our Timed Bond Fund Folio is an actively managed folio that engages in market timing using bond mutual funds or ETFs.  The object of this folio is to invest in bonds that will provide a high total return while limiting losses of principal during periods of overall bond market weakness.  This folio will normally invest in either a high yield corporate bond fund, intermediate government bond fund, or a money market fund depending on the strength of each sector. 

 

For most investors, it is prudent to diversify among two or more of our investment strategies.  Our Diversified Model Portfolios illustrate how are fund timing strategies can fit within a risk-controlled portfolio.  Alternatively, depending on your income needs, risk tolerance level, tax considerations or other factors, we can design a portfolio that is tailored to your objectives or preferences.

 

What is a Folio?

A Folio is a subset of a portfolio and is used to describe a group of stocks, or funds that are managed using a very specific investment strategy.

 

Exchange Traded Funds

Exchange traded funds (ETFs) are index funds or trusts that are listed on an exchange and can be traded intraday. Investors can buy or sell shares in the collective performance of an entire stock or bond portfolio as a single security. Exchange traded funds add the flexibility, ease and liquidity of stock trading to the benefits of traditional index fund investing.

 

ETFs, in general have significantly lower annual expense ratios than other funds because they are index-based, not "actively" managed.  And since they trade on an exchange, ETFs are insulated from the costs of having to buy and sell securities to accommodate shareholder purchases or redemptions.  Of course, an investor selling ETF shares may realize capital gains or losses, as with common stocks.

 

ETFs are designed to generally replicate the holdings and correspond to the performance and yield of their underlying index.

 

Dividends paid by companies and interest paid on bonds held in an ETF are distributed to ETF holders, less expenses, on a pro rata basis. Of course, not all companies will pay dividends.

 
   
   

 

© Schultz Financial Management 2002