Editors' Pick: Originally published Feb. 22.

We know you think that you and your advisors can time the market: we just don't think it's a great long-term strategy.

A whole lot of investors came away from the recent economic downturn with exactly the wrong lessons. According to a survey of wealthy investors by UBS, more than half of wealthy Swing/World War II-era investors (57%) learned that sticking with a “buy and hold” investing strategy is important. That's actually good news, but it would be better if more than one in three Millennials (33%) felt the same way.

Instead, 27% of Millennials say market timing is the most valuable lesson they learned. Not surprisingly only 10% of Baby Boomers agree. Millennials have turned into big talkers since the recession, with 43% saying they're willing to mix it up and take more risk with investments — double the percentage of Generation X investors who say the same (21%), more than three times that of Baby Boomers (12%) and almost five times more than that of the Swing/WWII generation (9%). However, when asked about cash holdings, Millennials play it safe and, on average, hold the most cash: 41% vs. 28% for Gen Xers, 20% for Baby Boomers and 19% for the Swing/WWII generation.

“Millennials are arguably more conflicted than other generations when it comes to how they view investing,” says Sameer Aurora, head of client strategy for UBS Wealth Management Americas. "Almost half say they would take on more risk now, but they’re holding twice as much cash as Baby Boomers. Also, Millennials are unhappiest with how their portfolios are positioned, but they are the least likely to do anything about it.”

We get it, Millennials: You're unhappy with how you played the decline and recovery. For those of you lucky enough to have decent-paying jobs through it all, 52% regret selling investments during the declines, as opposed to just 23% of Gen X and 14% of Baby Boomers. You're also bummed that you didn't invest more more during recovery periods, with 68% of you lamenting your time on the sidellines vs. 52% of Gen X and 44% of Baby Boomers. As a result, only 15% of Millennials are happy with how their portfolios are positioned (15%), compared to 32% of Gen X, 50% of Baby Boomers and 56% of the Swing/WWII generation.

It also isn't getting less scary out there right now. About 23% of UBS's wealthy investors think recent market volatility signifies that the U.S. is on the verge of a longer-term market decline. More than three-quarters (76%) think the myriad global concerns affecting markets make it challenging to understand the whole financial picture. Some 81% feel that global terrorism is part of the “new normal.” Eight out of 10 (80%) are worried about the outcome of the 2016 U.S. Presidential election, and three quarters (76%) are concerned about the size of the country’s debt load.

That's a lot to process, but that doesn't make timing the market a great answer, even if it seems easy to do so. John Diehl, senior vice president of strategic markets at Hartford Funds, notes that just because investors can check in on and tinker with their brokerage account in real time with the swipe of a finger, it doesn't make it a good idea.

“The market has ebbs and flows, and short-term volatility may not be an indication of long-term growth,” he says. “While staying on top of and proactive in one’s finances is generally good practice, being hyper vigilant has the potential to cause an investor to make impulsive decisions.”


While Diehl understands the desire to track the market, buy when it's down, sell when it's up and protect assets by moving them out of the market's way, those market movements can be difficult to predict and can damage your returns if you're timing the market incorrectly and missing more dramatic shifts that can make investors miss out on some of the better opportunities. Paul Jacobs, chief investment officer of wealth manager Palisades Hudson Financial Group, notes that if you wouldn't trust the manager of a fund that has dramatically outperformed its peers over the short term, you should be similarly cautious about taking similar action yourself.

“Spectacular short-term performance often indicates the fund manager is doing market timing or taking too much risk,” Jacobs says. “It’s great while it lasts, not so great when the fund tanks.”

It also makes you susceptible to “recency bias,” which makes you overly optimistic or pessimistic from the belief that recent market trends will continue. Anthony D. Criscuolo, certified financial planner with Palisades Hudson Financial Group in Fort Lauderdale, Fla., notes that “recency bias” is one of the most common and dangerous quirks of investor psychology.

Instead of giving into it, however, Criscuolo suggests maintaining a balanced portfolio and rebalancing whenever particular holding gets about 10% out of whack. For example, if you want to put 35% of your portfolio's value in energy stocks, you would sell off if that stake hits 38.5% of total portfolio value or higher and add to it if it dips below 31.5%. Without doing so, you're just creating more risk and doing little to bulk up your portfolio's overall value.

“When you sell your recent winners and buy more of the recent losers, you are selling high and buying low, not necessarily exactly at the top or bottom,” Criscuolo says. “Over time rebalancing will lead to superior long-term results because investments revert to the mean over the long haul. Rebalancing is the opposite of a market-timing strategy: it’s about staying disciplined.”

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.