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Can you win with market timing?

By Judy Martel · Bankrate.com
Tuesday, June 7, 2011
Posted: 4 pm ET

Market timing has gotten a bad rap, with its tea-leaf reading reputation. Investors who engage in it are considered day traders for the most part, playing high-stakes games with their wealth.

Done right, of course, market timing can bring in big wins. But the danger is that it's difficult, to say the least, to predict what any sector of the market is going to do even if you're an expert. Those who pulled out of the market as it slid into the depths during 2008 and 2009 learned the hard way that they may have sold low and are now in a position to buy when stocks are high. 

Day trading aside, nearly every investor performs market timing in its broadest sense, and done right, it’s a smart investing tactic. Think of it as taking advantage of long-term investment opportunities, not as day-to-day trading. For example, if you had some cash on the sidelines when the market fell, you could have deployed it to buy stocks on sale. That's a market-timing tactic that would have paid off without being overly risky. 

Rebalancing your portfolio is another area of market timing, but investment experts disagree on the best way to handle it. Advisers usually advocate allocating your investments to meet your time horizon and risk tolerance and sticking to it no matter what the market is doing by rebalancing at regular intervals. But other experts maintain that if you continue to rebalance toward falling assets, you're compounding losses that will be difficult to make up in the sectors that are gaining. They recommend that you pay attention to what the market's doing and allocate accordingly. But even though that's a long-term strategy, it's risky if you don't pay close attention to what's going on in the economy and the market.

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