--Warren Buffett
Here's an interesting blog post on SeekingAlpha written by Larry Swedroe. Swedroe, Director of Research of BAM Advisor Services, focuses on results stemming from the last 11 recessions. Returns during these periods averaged out to 7%, a full 2% more than what Treasuries averaged during the same periods.
This means, even if investors could perfectly time selling their portfolios of stock at the market high, they still would have made out worse than holding through the recessionary periods.
Unfortunately, even most professional investors can't forsee market tops. What ends up occurring during tumultuous times like these is that investors overtrade and the market truly becomes Buffett's "relocation center from the active to the patient."
Swedroe has a solution for bolstering performance: rebalancing.
Here's the money quote:
"During bull markets (when investors tend to become greedy) you will be selling stocks to reduce your equity allocation to the appropriate level and during bear markets (when many investors are fearful) you will be buying stocks to raise your equity allocation back to the appropriate level."
Investors can use weak markets like we've seen the past few months to leg into some core index ETFs, like the Rydex Equal-Weight S&P (Amex: RSP), the Powershares Nasdaq QQQ Trust (Nasdaq: QQQQ), the WisdomTree DEFA High-Yielding Equity Fund (Amex: DTH), and the iShares MSCI Emerging Markets Index (NYSE: EEM).
Zack Miller is the Managing Editor of IsraelNewsletter.com and a former equity analyst for a leading multinational hedge fund.
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