“On the tenth day of Christmas my broker gave to me…10 sectors moving…”

“You cannot afford to wait for perfect conditions. Goal setting is often a matter of balancing timing against available resources. Opportunities are easily lost while waiting for perfect conditions.” – Gary Ryan Blair, Motivation Speaker & Author

I know that the quote above isn’t directed toward investments, but the principal is key! If you are going to wait for “the perfect conditions” in order to buy or sell then you will be waiting for a long time. This would be the idea behind market timing. Some advisors will weigh accounts toward a sector that they feel will outperform other sectors. I am listing the 10 sectors within the S&P 500.

  1. Consumer Discretionary
  2. Energy
  3. Health Care
  4. Utilities
  5. Consumer Staples
  6. Financials
  7. Information Technology
  8. Industrials
  9. Materials
  10. Telecom Services

Back in the good ‘ole days, brokers and advisors would either be in cash or stocks; it was like Russian Roulette with a gun that has two chambers. Either the person was right being in the market or wrong, depending if stocks were up or down that year. Now, if we have 10 sectors of the market, then our gun has 10 chambers with 9 bullets in it. They made it even harder on themselves with having a one-in-10 chance of getting it right. Do you like those chances? Of course you don’t. Over-weighing one sector of the market on any given year because of a prediction or feeling is not being prudent. It is market timing in disguise.

Rebalancing, on the other hand is a systematic way of actually reducing the volatility in your portfolio while giving you the opportunity of selling high and buying low. For example, for simplicity reasons I will say we have a portfolio with 50% bonds and 50% stocks. If the stock market portion of the portfolio goes up 5%, and perhaps the bonds are either stagnant or go down; this would make our hypothetical portfolio 55% stocks, 45% bonds. If we were to sell off 5% of the stocks to buy 5% more bonds, then that would bring us back to the original 50/50 mix. This is the idea of buying low and selling high. It is tough to do when you are speculating on what markets will move at what time. But, if you have a systematic, or organized, way of doing this where emotion is not involved, then you have a more prudent portfolio than many people out there. Don’t speculate or gamble with your money. Create a lifelong game plan, and if need be, hire a financial coach to teach you about these concepts. You will find it invaluable!