Yes, you can time the market. The S&P 500 benchmark provided an admittedly handsome 27.76% annual return in 2009. However, if you invested in a diversified index mutual fund when the market was at its low point in March more than when it recovered towards the end of the year, you probably beat the market. When the market was at or near its lowest point earlier in 2009, I invested in the market as much as possible with my 2008 SEP and Roth IRAs.
These purchases paid off well in 2009. The Vanguard Total Stock Market Index in my Roth IRA was my biggest winner judged by percentage simply because I invested $4,000 in March and $1,000 in April. Now that the stock market has mostly recovered, I’m nervous about my next investment moves. While I am investing with a distant time horizon within my retirement accounts, when it comes to my IRAs I like to try to ensure I’m getting a good deal.
My 401(k) on the other hand is on auto-pilot, investing a percentage of my salary every two weeks regardless of the market’s situation. This coming year I’d like to change aspects of my 401(k). First of all, I haven’t rebalanced my portfolio in a long time. But before I rebalance, I need to decide whether my investment allocation is appropriate. My contributions are allocated between a large cap value stock mutual fund, a large cap growth stock mutual fund, an international stock mutual fund, and a commercial real estate fund. The company’s matching contributions are split into two sections. The first half invests solely in company stock, though that can be sold and rebalanced within the portfolio, and the second half invests in the same allocations as my portions.
While this combination has performed well for me recently, the funds are more expensive than index funds. There is an index fund available in my 401(k), so that may be a better choice from the long term than the large cap funds.
Here are my investment account balances and performance numbers as of the end of 2009.
Updated January 17, 2011 and originally published January 6, 2010.