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I'm distributing my investment to stock(mostly MSCI ACWI) and bond funds, Basically 60:40. I also rebalance monthly as I got paid monthly.

I recently worried about the global and local(South Korea) economy. I can't remember all, but there was negative news like:

  • Venezuela economic crisis
  • South Korea raised the minimum wage, causing rising unemployment rate and costs of business.
  • Trade wars between USA and China (and others)
  • Global Debt at Record Level

I'm not trying to sell all my investments, but I'm thinking of reducing my stock funds allocation to bond funds a little bit; maybe to 50:50. I will raise it back after an economic crisis hits(if it happens).

My hunch tells me that timing the market is not a good idea, and stick to the plan no matter what. But it also seems risky to ignore bad signals.

Is adjusting my portfolio's distribution according to bad signals from news risky?

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    Basing your investment decisions on the news cycle is the worst thing you could do, it demonstrates that you have no real strategy. – Victor Jun 8 '18 at 9:11
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    @Victor please don't answer in comments! – MD-Tech Jun 8 '18 at 9:45
  • Adjusting your portfolio prior to recessions like 2000 and 2008 is sheer genius. At other times, not so much. – Bob Baerker Jun 8 '18 at 11:56
  • @BobBaerker: And even then, it's only genius in hindsight. – Sean Jun 8 '18 at 14:17
  • It's better to be lucky than smart. – Bob Baerker Jun 8 '18 at 14:28
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Markets are remarkably complex and driven by trillions of decisions made by billions of people. Furthermore, your own news sources contain biases of which you are probably unaware. You almost certainly do not have enough information to make an informed decision about which way the market will move in the short term. Even full-time, well-educated financial professionals with support staff are often wrong.

Markets behave irrationally in the short term. Rebalancing a portfolio based on small a selection of bad news is more likely to simply cost you transaction fees than earn you any alpha on the portfolio returns.

  • Good answer; only thing I would add is that it's likely that any reaction to "bad news" has already been priced into the market by other that are smarter and/or faster than you. – D Stanley Jun 8 '18 at 14:19
  • Yes, no one knows which way the market will move in the short term and predicting it is a fool's errand. But one has to be oblivious not to realize that it has hit the fan when the market is dropping 50+ pct over 18 months (see 2000 and 2008). It doesn't take a rocket scientist to reduce long exposure and if not fear based, add some short positions. If the latter works out, transition even more.Take a small chance on being wrong when the signs appear. It won't be the end of the world if you reduce exposure a bit and you're wrong. Markets don't melt up but they surely do accelerate downward. – Bob Baerker Jun 8 '18 at 19:05
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Glen gives a good answer; I would only add a couple of specifics:

  • Adjusting the distribution in the way you propose is actually reducing risk in your portfolio (by moving from equities to bonds), however it's also reducing the expected return. So it's risky only in the sense that it might cost you more in opportunity cost.
  • Your equities are already well-diversified within that index. Having 40% bonds, though, is likely too conservative unless you have a low risk tolerance or will need those funds in the next 2-3 years. Otherwise, you'll be missing out on equity gains in the long run
  • Any market reaction to news (good or bad) is likely already priced into the market by other who are smarter/faster than you. So diversifying after the prices have changed is counter-productive (you will be selling low)
  • If you are concerned about bad news in specific sectors, selling an "all-world" fund is not going to help - it would only make sense if you predict a global crisis (which would affect bonds as well). You might be better off self-diversifying into separate sectors and rebalancing based on your expected return of each sector. But that's a lot more work.
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Go with your hunch.

In the grand scheme of things, the market should always win, by which I mean that it will climb. Sure, there will be ups and downs, and the stocks you hold today might do extremely well, only to slump tomorrow, and the ones that are going to be affected might bounce back stronger. That's why one is recommended to diversify their portfolio.

On an average, things will improve.

Disclaimer: I am not a stockbroker. Also, there are people who time the markets and succeed, but using them as an example would be akin to using the example of Steve, Mark and Bill to drop out of college.

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    Making investment decsions based off of hunchs is probably among the fastest ways to lose money. – Glen Pierce Jun 8 '18 at 13:41
  • And it's also said that one should only willingly invest money in markets, that one is prepared to lose anyway. That being said though, I was only pointing to the hunch that the OP had in this case, which is to hold on to those stocks which might not perform well, because they could bounce right back. I agree with your comment in the sense that making decisions based on emotions is highly risky. – ValarMorghulis Jun 11 '18 at 8:35
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You're trying to reduce risk by hedging into more bonds. Your risk should be based on how long you can stay in the market not what the market is currently doing.

You are correct in that you wont succeed in trying to time the market. The best thing you can do for a long term investment strategy is stick to it and ignore the news. On average the market should rise the same average rate its been rising so if you have the time you'll end up fine. Also the best time to buy, as long a you're diversified and can stay in the market long term, is when the market is doing poorly because you'll be able to get more stocks for your money so when it rises again you'll profit more. The problem is that you wont be able to time when that will happen so you'll miss out if you don't keep consistent.

Also as has been said theres biases in news and you would need to research in order to try to see through those biases. Most news doesn't report on the parts of the economies that are doing fine, they only care about the parts that are doing poorly or can be perceived as doing poorly, even if they're fine.

Heres a link to an article about investing in a volatile market which supports my point.

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