Thinking About Market Timing?

Mar. 23, 2020 4:45 AM ET
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Summary

  • Are investors best served by abandoning their long-term allocations to move to the safety, but limited return potential, of cash?
  • It's never been easy to correctly time markets - but is this time different?
  • The inverted yield curve may not be an immediate market signal despite its recession warning capability.

Originally published on March 16, 2020

Editor's note: This post was originally published on the Russell Investments blog in December 2018. Due to popular demand, we've published an updated version.

In recent weeks, how many times have you fielded the question, should I be moving to cash? Or maybe it's come in the form of a bold (panicked?) statement: I need to move to cash.

We have certainly seen an uptick in this sentiment accompanying the increase in market volatility these past few weeks.

Skittish investors are eyeing the current CD rates and thinking, a 2-3% return looks pretty attractive relative to a market correction.

Are investors best served by abandoning their long-term allocations to move to the safety, but limited return potential, of cash? It's never been easy to correctly time markets - but is this time different?

Let's put emotions aside for a minute and look at some of the data. Historical perspective on how frequently portfolios have lost money may help investors wrestling with the notion of exiting the market.

Considerations before moving to cash

Before considering a move to cash, investors should assess a few factors:

  • How frequently have markets turned negative - and how long has that lasted?
  • How confident are you about the "sell" signal. and how will it feel if you're wrong?

It's true that capital markets have produced negative results for investors at times. The shorter the time horizon, the more frequently this occurs. Looking back over the last 50 years, diversified portfolios1 have produced negative returns approximately one-third of the months. One in every three months is rather frequent. For those investors with an extremely short time horizon, cash may be a viable option.

If you extend your time horizon out to one year, diversified portfolios have delivered negative results approximately

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Russell Investments is a leading global investment solutions firm with $326.9 billion in assets under management (as of 3/31/2021) and $2.8 trillion in assets under advisement (as of 12/31/2020) for clients in 32 countries, The firm provides a wide range of investment capabilities to institutional investors, financial intermediaries, and individual investors around the world. Building on an 85-year legacy of continuous innovation to deliver exceptional value to clients, Russell Investments works every day to improve people’s financial security. Headquartered in Seattle, Washington, Russell Investments has offices in 19 cities around the world, including in New York, London, Tokyo, and Shanghai.  Russell Investments’ ownership is composed of a majority stake held by funds managed by TA Associates with minority stakes held by funds managed by Reverence Capital Partners, Russell Investments' management and Hamilton Lane Incorporated.Frank Russell Company is the owner of the Russell trademarks contained in this material and all trademark rights related to the Russell trademarks, which the members of the Russell Investments group of companies are permitted to use under license from Frank Russell Company. The members of the Russell Investments group of companies are not affiliated in any manner with Frank Russell Company or any entity operating under the “FTSE RUSSELL” brand.

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