Market timing has been a good risk-management strategy for me in the 2022 bear market. Pros and cons of this approach

Market timing has been a good risk-management strategy for me in the 2022 bear market. Pros and cons of this approach
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When I talk to financial advisors and fund managers, a common advice they give is "Do not time the market" or "Market timing does not work".

They have a financial incentive to persuade their clients that market timing is bad.

Buy-side financial advisors/asset managers earn their fees based on how much assets they manage or AUM (asset under management). If clients sell their investments and move into cash, AUM drops causing fee income to drop. Small wonder financial advisers dislike clients who time the market and move into cash. Financial advisers are financially rewarded to advise clients to make new investments monthly regularly as their salary comes in. This way, AUM will grow on a steady and stable path. Fees will follow upward. In a bear market when the client is complaining of losses, it is in the interest of the financial adviser to advise the client not to panic and hold on to their investment. Even better, if clients have surplus funds, tell them to buy more to take advantage of the investment opportunity. If clients follow this advice, AUM may even grow despite the bear market. So will income for the financial adviser and asset manager. It is not surprising that dollar-cost-averaging(adding new investments at regular time intervals) is a favourite investment approach recommended by financial advisers.

I emphasize I am not implying the financial adviser is not giving good advice. Certainly not. What I am saying is they are inclined to give biased advice when they say "Market timing is bad", or "Don't panic, don't sell in this bear market" because they are financially rewarded to be biased. Let me be honest about it. I am no angel myself. If I were a financial adviser myself, I will do the same.

A good investor should have an independent mind and not be too reliant on financial advisers. When it comes to money, it is everyone for himself. No one is keener to grow his own money than himself. Others will persuade you that it is in your interest to act in a manner that is in their own interest. Whether it is really in your interest can only be best decided by yourself if you do your own homework and exercise the knowledge with an independent mind.

I arrived at my own conclusion about whether market timing is a good investment strategy or not. It depends on the individual. Ultimately, it boils down to knowing yourself and what fits you best. I personally chose to be a market timer but I qualify that statement by saying I believe regular monthly investing in stock indices regardless of price fluctuation suits the vast majority of retail investors.

In my opinion, market timing is suitable for people who love the financial markets and do not mind spending time to monitor/research the markets. I can spend several hours without feeling bored because I enjoy the process. Unfortunately, there is a price to pay for this. Due to the time spent on it, it can be a distraction to your career. Family time also suffers. In contrast, a passive dollar-cost-averaging investment approach into stock indices consumes much lesser time and the returns can be just as high, in many cases higher, than active investing, particularly in a bull market.

Where market timing shines is during bear markets. Diversification is no protection in a bear market because almost every asset class will go down. In 2022, the best place to park your money is in cash, preferably in safe-haven currencies. Although this has been a negative year for me, my losses were not high compared to the general market because I did not hold on stubbornly to my investments as they go down.

A market timer will start selling his investments at the early stage of a bear market and by the time the market is near its bottom, the market timer will be enjoying high cash levels to deploy when he senses that the market is on the road to recovery(see my latest market sense on a possible recovery). Unfortunately, there is a downside to this approach. The market can rebound after the market timer sells out. If this happens, then the market timer must have the discipline to buy back at higher prices to avoid being out of a bull market.

It is always possible that the market falls back after buying or rebounds after selling. I see this as the cost of risk management. Getting whipsawed by Mr Market is the bane of a market timer. I prefer to take the risk of being whipsawed and move on than be stuck on an investment that stays flat for 25 years as a buy-and-hold investor. This can happen even for stock indices which are supposed to go up in the long term. See what happened to Hang Seng Index.

On a side note, I am confident that Hang Seng Index will make a strong recovery soon from the 25-year low made on 24Oct2022 and am happy that my cash holdings are at a high level today to take advantage of the impending rebound. I have worked with Hong Kong people before and the good impression they left me gives me confidence in Hong Kong's future.

Given that a market timer will have plenty of cash in a prolonged bear market, I am always on the search to put this cash into good use. One of the good places I found is moomoo Cash Plus because it offers good yield, is highly liquid and meets my safety standards (funds are invested in investment-grade financial institutions). The yield as of 13Nov2022 is 3.4517%.

moomoo Cash Plus invests in Fullerton Cash Fund. Read my review. Source: moomoo app

What appeals to me as an investor is that moomoo Cash Plus is liquid and I can retrieve my funds within a few days. While you can get a similar or higher yield today elsewhere, your funds will have to be stuck for longer periods. If you are an investor who needs to deploy funds fast when an opportunity arises, a liquid fund like moomoo Cash Plus is a wonderful place to park your cash for the time being. I do not know of better alternatives today. If you know of better choices, please let me know.

Currently, there is an ongoing promotion on moomoo Cash Plus providing 5%* per annum guaranteed rewards. Click here for further details and sign up if you are interested. If you are not eligible for the annual 5%* guaranteed rewards, you can still enjoy the 3.4%++ annual interest rate. I personally have substantial funds with moomoo Cash Plus at the moment.

* Terms and Conditions apply. Do your own due diligence, so read the terms and conditions before applying.
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All views expressed in the article are my independent opinions. Neither moomoo Singapore nor its affiliates shall be liable for the content of the information provided. This advertisement has not been reviewed by the Monetary Authority of Singapore.

I put my idle money with moomoo Cash Plus while waiting for investment opportunities because it offers above-average yield and can be withdrawn within days. If you are keen, please read my review and sign up if you like it.