Finance Guy: Timing of your life
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Many people often ask me if it is a good time to get out of the market.
The most important thing an investor can do is set their asset allocation and stick to it for many years. Change the allocation only when events call for it, not when the stock market seems to call for it.
If your goal calls for a six percent return, the allocation of fixed income to equities may be around 50-50. When equities swing up, (changing your allocation more than 10 percent), rebalance some of the equities and buy into fixed income.
When equities plummet more than 10 percent, sell some fixed income and buy more stock. This is best done with good, no-load low-cost index mutual funds.
Here are some examples of the market’s unpredictability:
• On Aug. 14, 2000, the S&P 500 closed at 1491. Four years later on Aug. 12, 2004, the S&P fell a further 29 percent to close at 1063.
• On Dec. 4, 2000, Wired Magazine said that Fred Segal believes it is unlikely that the NASDAQ will drop more than another 200 points. The NASDAQ fell a thousand points shortly thereafter.
• Aug. 8, 2001, Craig Barrett predicted that the computer industry had bottomed out. One month later the Philadelphia Semiconductor's Index fell another 20 percent.
My favorite guy, Jim Cramer, had some wise advice. “In my 18 years of trading, I've never called the bottom correctly yet," he said.