Too Late To Get In?

A week ago, reader Scott, send this email:

I normally follow along with your plan but have gotten out of date due to an illness. My question is what level of investment are we at right now for domestic mutual funds? 1/3, 2/3 etc?

Depending on a client’s risk tolerance, we’re invested anywhere from 60% to 100%. So, is it too late to get in now? To better manage risk with new money, and given the duration of the existing rally, I use a combination of hedged positions along with outright long ones, for which I use the incremental 1/3 buying procedure.

It’s no secret that the market has come a long way and is overdue for a correction. If you are not fully invested, simply accept the fact that you’ll be making a little less on the (future) upside while having less risk on the downside.

As an aside, you constantly will hear statements that the market, as measured by the S&P; 500, has now rallied 48% since making the March lows. This is strictly a number to measure trough to peak performance of indexes, just as you will hear that the market declined some 60% from the 2007 highs before making a low.

Do dot interpret this as a magical portfolio performance that someone actually has sold at the top and bought back in at the exact bottom. It just does not happen, although the way these data are presented from to time to time, you may assume otherwise and feel bad that you did not do the same.

Consider them statistical measures and nothing else. No one ever sells at the exact top and buys at the exact bottom. Generally speaking, using Trend Tracking, we’ll sell close to within 10% of the top. However, when the market collapses fast and furious, as it did last year, our signals will not get us in within 10% off the bottom (unless you use hedges). We’re closer to the 20% plus level.

Again, I’d rather be out in time and a little late to the next party, because I don’t have to make up huge losses.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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