Market-timing can work, but it mucks things up

I AM writing this a little bit late - maybe seven years too late. It was after the financial crisis that "tactical asset allocation" came into vogue. The buzzword, and the idea itself, are still very popular.

Tactical asset allocation is a fancy way of saying market-timing. When you think it's a bull market, you hold more stocks; when you think it's a bear market, you hold more cash. Everyone would like to do that, right? You buy when things are going to go up and sell when things are going to go down, and you make a bunch of money.

The trick, of course, is getting the timing right. If you bet that we were still in a bull market in October 2007, you got caught in the crash. But if you bet that the downturn in September 2011 was the start of a bear market, you missed the boom that followed. Of course, you can be cautious or aggressive with market timing - you can slightly shift your allocations, or you can try to go for the big short. But the greater the potential reward from picking market shifts, the greater the risk.