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Market-timing tips from Paul Merriman, Seattle money manager

Friday, 09 March 2012 12:05

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That’s why Merriman believes that, for the average investor, “It makes more sense to buy and hold.”

Decide how much you want to have in stocks and bonds, and stay there. Rebalance when your allotment to bonds or stocks veers dramatically from your preferred allotment. The average investor, he insists, isn’t so much rational as emotional.

“Most people allow emotion to take over their intellect,” he says.

It’s the same old story: fear and greed move markets. And that’s why investors may do far, far worse than a mutual fund they’ve been invested in. They sell at the wrong time, buy at the wrong time. As the expression goes, they shoot where the rabbit was.

Merriman cites a study that found that investors in CGM Focus, a very volatile fund, lost an average of 16.8 percent a year over 10 years. During the same period, the fund was up 17.8 percent a year. Investors bought at the wrong time, and sold at the wrong time. “Talk about ICSIA timing!”

His is a very sensible approach. And Merriman also, very sensibly, advocates index funds. “Some geniuses can do better than index funds,” he grants. “But so what?”

At www.paulmerriman.com, he offers free Vanguard, Fidelity, T. Rowe Price, and ETF portfolios for either conservative, moderate, or aggressive investors.

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