Positioning to “Time” the Stock Market

PUBLISHED Dec 21, 2022, 6:29:05 AM        SHARE

imgFiPhysician Blog

How to Time the Market with Positioning

You can’t time the market! Many have tried, and many have failed.

But there is an acceptable way for investors to time the market: what about positioning assets rather than predicting the future?

As the saying goes: time in the market is better than timing the market.

What does that mean? It means you miss the big up days if you pull yourself out during the big down days.

As the other saying goes, volatility clusters. Volatility, while always around, happens to the upside and the downside around the same periods.

You cannot miss these big up days! But you need those big up days: you recently had big down days!

And that is the difficulty with timing the market; you need to be right twice: both when you sell and when you buy. You know better than to time the market. No one is right twice. Not all the time.

So why not use positioning instead?

Positioning is Like Market Timing

What if you position your investments to take advantage of market volatility rather than trying to predict the future?

Positioning vs. predicting means guessing if the market will be up or down.

Positioning means deciding ahead of time on asset allocation and rebalancing strategy.

Positioning is Asset Allocation and Rebalancing

If you have bonds in your portfolio, then you can rebalance and sell them while they are up to buy stocks when they are down. That’s right! You just rebalance your position rather than predict the market. No foul!

Of course, you can’t be 100% equities to take advantage of positioning your investments.

But you don’t want to be 100% equities anyway.

Why Don’t I Want to Be 100% Equities?

Even if you are young and have time to take advantage of rebalancing during a downturn in the market, you want to have at least 10% bonds in your portfolio.

After all, a 100/0 equity-to-bond ratio is about as good as a 90/10.

Wait, no one has told you that before? Well, take a look at the efficient frontier.


Above, you can see the efficient frontier. Returns are on the vertical, and risk (as measured by standard deviation) is on the bottom. The efficient frontier is the set of portfolios that offers the highest expected return per unit risk. Reward due to the risk you take given your asset allocation.

The top right dot is a 100/0 portfolio with the highest risk and the highest return.

But look at how shallow the slope is when you go down to 90/10, 80/20, etc.

You take less risk as you drop down your asset allocation, but the reward is not much different. My point: 100/0 is not much different than 90/10.

Once you get down to the 60/40 portfolio (the circled dot), then back up two more to 40/60. Here, the curve takes an unusual turn: more bonds increase the risk AND lower the return. So portfolios with more bonds than 30/70 have more risk and less returns. Who knew?

Go, efficient frontier! Of course, it is not that simple, as the efficient frontier changes depending on the actual returns and volatility during a given period. Let’s check that out now.

Positioning vs. Predicting over the Decades

img Above, you can see the curve looks different for different decades. Spend a little time looking at this graph, but let me point out that the 60s (light blue) had a pretty normal looking efficient frontier. The ’70s, on the other hand (in green), had flat returns regardless of asset allocation.

Next, in red, look at 2000-2004. Look closely! During that period, bonds are actually on the top (where you would expect to see stocks), and you got less return and more volatility for 100% stocks!

Finally, in black, see the average from 1960 to 2004.

These are inflation-adjusted (real) returns and make several important points. But I want to make the point that 100/0 is not much different than 90/10 or 80/20.

Rebalancing: When You Have Bonds, You Can Time the Market

Or rather than time the market, you can rebalance your position when it gets out of whack.

Remember, the goal is not to predict the future. If you could do that, you’d be rich and not bother with blogs on the internet. But no one can do that despite knowing that every year there is usually a 10% drop in the market, and every 5-7 years a drop of 20% plus. These are the times when the impatient transfer their money to the patient.

Positioning vs. predicting. You want to have bonds to use positioning to time the market via rebalancing.

When to rebalance? Do it when the market is high to control your risk and return to your preferred asset allocation. And do it when the market tanks to sell high (bonds) and buy low (stocks). Vanguard has an amazing white paper on the topic.

Remember, concentration makes you rich, and diversification keeps you rich.

Risk-adjusted returns are more important after you have saved up some money. Sure, initially, go 100% stocks. But, once you have “enough,” take some risk off the table and invest per your preferred asset allocation.

Be a positioner if you don’t want to be accused of being a market timer. Set your asset allocation and rebalance.

Many folks want to avoid bonds right now. So while I hope you see there is value in bonds, you may consider a slice of your asset allocation devoted to bond-alternatives.

Originally Posted in FiPhysician

Sound investments
don't happen alone

Find your crew, build teams, compete in VS MODE, and identify investment trends in our evergrowing investment ecosystem. You aren't on an island anymore, and our community is here to help you make informed decisions in a complex world.

More Reads
23+ Best Places To Buy Cheap Clothes [Updated]

You can buy cheap clothes and still look stylish. However, there is no denying that buying an array of clothing can be expensive. One way to cut costs is to buy second-hand clothes. But there are ways to buy new clothes without spending a fortune on your wardrobe if you want something new. This blog post will show you 15+ of the best places to buy cheap clothes.

Doves In Hawk Clothing

When the time comes, will central banks prioritise employment or inflation? The goals of central banks are price stability and maximum employment. For much of the last four decades there was little conflict between the two. Strong disinflationary forces meant that unemployment, outside of recessions, could be kept low.

Early Retirement Hindsight: What I Would’ve Done Differently

I feel truly blessed to have been able to pull off an early retirement. I take great pride in being able to take the leap at the age of 51. It came after a long career with a less than a 6 figure salary. Still, after experiencing early retirement for many years and knowing what I know now, I often think about what I would have done differently. Allow me to share my early retirement hindsight.

Making 2022 Feel Much Better

If you started investing in the S&P 500 over the past 5 years, 2022 has erased all your gains. This chart shows a portfolio that’s been dollar-cost averaging into the S&P 500 since the beginning of 2018. COVID caused a small speed bump, but the market quickly shrugged it off. By late 2021, this investor was up 80% over 4 years, or 16% per year.

Dividend Yield Is 2022’s Upside Outlier For Equity Factor Returns

The US equity market has been clawing back some of its losses recently, but reviewing results through a factor-risk lens shows dividend yield leading the field with the only positive performance for 2022, based on a set of ETF proxies.

Dividend Yield Is 2022’s Upside Outlier For Equity Factor Returns

The US equity market has been clawing back some of its losses recently, but reviewing results through a factor-risk lens shows dividend yield leading the field with the only positive performance for 2022, based on a set of ETF proxies.

Is Constellation Energy a Buy?

Constellation Energy is not recommended as a buy based on its current price, its negative margins, and its aging fleet of nuclear power plants.

FED In It For The Long Haul

Market Commentary


Have you ever set a goal like losing weight, only to give up after a few weeks? We have all been there.

Dividend Income Summary: Lanny’s November 2022 Summary

This is what dividend investing is all about! Investing in dividend stocks allows YOU to earn dividend income, the best passive income stream! Bias, you better believe it.

What Can the Fed tell the Market it Does Not Already Know?

The softer than expected US CPI drove the dollar and interest rates lower, while igniting strong advances in equities, risk assets, commodities, and gold.

Dividend Kings In Focus: Northwest Natural Gas

Utility stocks are often associated with long histories of paying dividends to shareholders. Their relatively predictable earnings and recession resistance combine to make increasing dividends somewhat easier over the long term than a business that is highly cyclical.

Why Did I Buy That House? Home Buyer’s Remorse

Purchasing a home is typically exciting, regardless of whether you’re a first-time buyer, upsizing, or downsizing for retirement.

Can dividend increases raise the share price?

Can consistent dividend increases eventually help to raise the share price? The simple answer is yes!

10 Questions to Ask a Financial Institution Before Opening an Account

So, you want to open a personal or business bank account, but you’re not sure where to start? This guide is here to help.

3 Recession Proof Stocks with Low Volatility

3 Recession Proof Stocks with Low Volatility. The world is experiencing a wide range of macro troubles right now.


The great Hannah Montana once said “Nobody’s perfect”, and as a little girl who looked up to the advice of Disney Channel stars, this one stuck with me.

Roth is Better Than Traditional?

The summary of the article is that for long-term, diversified stock investing, I use the following after-tax, real return estimates

The Brilliance Of A Retire By 50 Plan

There’s a brilliance to dedicating yourself to a retire by 50 plan. The brilliant part that’s overlooked by naysayers is if you do it right, you can’t lose.

Monthly Dividend Stock In Focus: AGNC Investment Corp.

AGNC Investment Corp (AGNC) has an extremely high dividend yield of 14.9%, which is something this stock is certainly known for.

Resources for Publishers
Resources for New Investors