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Should I sell my mutual funds when I sense a bear market approaching and then buy the funds again once the bear market is here to get them at a cheaper price?

I have about $93,000 invested in non-retirement mutual funds. I have been considering trying to time the market by selling these funds when I sense a bear market approaching (incurring a $1,700 capital loss), and then buying the same funds at a cheaper price once the bear market has arrived. I have no debt and an emergency fund. Is this a good strategy, or too risky?

Debt, Retirement, Investing, IRAs, Mutual Funds
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May 2018

Great question, and as you can see by the responses none of us are too favorable of the idea of timing the market.  First you have to make two nearly impossible decisions.  1) When to get out, and 2) When to get back in.  The reason these decisions are nearly impossible is because bull markets usually die in a moment of euphoria.  Everyone wants in because everyone is making money.  It will be emotionally difficult to pull your money out and watch the market go higher for potentially months later.  Second, everyone is in a panic at the bottom and no one wants to invest cash until they sense a recovery.  I do think trend followers can generally help cut out some of the losses, but like most things in life consider using in moderation.  I prefer to make strategic shifts.  Let's say you're in IVV which is an ETF replicating the S&P 500.  When you think the end is near consider replacing it with positions like RSP (equal weight S&P 500) or CFO (volatility weighted ETF).  These smart beta strategies can reduce your market risk but still allow you to participate in some of the near term upside.  I also use mutual funds like JP Morgan Hedged Equity.  It can help hedge downside risk when the equity market is down more than 5%.  Wholesale changes are too difficult to time.

Good luck to you!

Matt Ahrens, CIMA®

May 2018
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