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Combination of lifetime strategies with market timing

  1. Introduction
  2. Popular 401K investors delusions
  3. Fashionable mutual funds mix
  4. Follow the leader
  5. Naive siegelism
  6. "Financial alchemist" strategy
  7. "All money in bonds" or "Depression might start tomorrow" strategy.
  8. "Gold always shines bright"  and "Commodities rulez" strategies
  9. Lifecycle strategies
  10. Economic cycle based market timing
  11. Combination of lifetime strategies with market timing.
  12. Conclusions
  13. Webliography
  14. Old News

This is a mixed strategy that can be executed with binary allocation strategy or any other lifetime strategy that we already discussed.

The simplest implementation would be a swap the investments on the point of crossing of threshold of some expansion/contraction signal: in this case your bond investment percentage became stock investment percentage and vise versa.  But it is easier to say then to do as in many cases signals are false and plans impose limitations on the number of trades per year. 

But increase/reduction of stock holding by say 1% a week until reversal mentioned above is feasible.  This is possible in many 401K portfolios were number of trades is restricted but trades below $1000 falls below radar.

To minimize false positives and the number of trades  you can react only on crossings that happened after staying above (or below) 200 days average for at least 200 days. That guarantees one trade per year. And you need to understand that while here you can minimize losses due to downturn you can also minimize gains from the upturn. There is no free lunch and you will miss the rally (and buying opportunity on the downside) if the signal proved to be a false positive.

All-in-all this is the most complex and most promising of dynamic strategies out of all discussed above. But the possibilities to execute it might be lacking for many people both due to limitations in 401K accounts trading and limitations of our own brains.

Brain is designed to convert data into patterns and this property may not be production in stocks investing. That means in stocks moves brain often see patterns that does not exist.