Market timing

Once again we see the market throwing a temper tantrum. On the way up it was tempting to handle your investments on your own. Now with the horizon less clear and a modest correction in the books as I write, you wonder if professional help might be worth the extra expense.

Those most knowledgeable about money resist the advice of commissioned (or fee-based) professionals. As everyone know, fees have serious consequences over long periods of time. The lower the fees the more you’ll have 10 years down the road.

But when the market gets schizophrenic confidence in one’s abilities declines. Worse, you can make serious mistakes well in excess of what you would pay a financial professional.

Most of the time the stock market is climbing north. Interspersed between bull markets are those times when rookie investors act as if the sky is falling.

Long bull markets turn normally intelligent investors into casino gamblers; they even use gambling terminology: we’re due for a bear market or as they say at the casino, “Red is due after 8 black spins” at the roulette wheel; as if the ball has a memory. The odds of it coming up red are the same as it was last spin, in case you were wondering.

Of course, long moves in the stock market sets off our sixth sense that this can’t last forever. Before long you’re not fully invested (a religious mantra of many investing circles) which smacks of market timing.

This brings up a good question: Should you always be 100% invested in the market?

If only it were as simple as a yes or no answer.

The truth is many people should NOT be fully invested in the market and some people SHOULD be and it has nothing to do with market timing. The trick is to know when to be fully invested and if not, by how much.

It boils down to your personal situation: where you are on your journey to financial independence, how close to retirement you are (or if you are in retirement), spending habits and viable alternative investments.

Periodically I get a message from a reader congratulating me on my financial success in life. The topic also comes up in consulting sessions more than I care to mention. The inquiry is always respectful and congratulatory. These people think I did something extraordinary when in fact it was actually a straight forward and simple process.

Part of my financial success is a direct result of living in my 50s. Time does a lot for net worth. Another huge advantage is I spent my entire adult life (except for those 14 months I played janitor at the church after I got married) self-employed. Business allowed me to control my income and taxes thereon more so than if I have a W-2 job at the local mill.

I’ve shared the story you are about to read many times in my office. By writing it down I hope it is easier to grasp the concept and how you can build a very large nest egg in short order. I get the feeling when I speak this concept it goes in one ear and out the other. I get it. However, this is too important—maybe the most important part of personal finance to reach financial independence—to just let it go as is. Once you grasp today’s message you have all the ammo you’ll ever need to control finances in your life and create a massive liquid net worth.