If a person pulls their money out of mutual fund and puts it in a money market account and later returns to th

Question

e stock market mutual fund, what are the statistics that show if they beat the market doing that? Typically can they beat the market or will they suffer because their money is unprepared to make big gains back when the market loosens up?

Answer 1

In the past year, almost all funds have come to disallow short term trading. Most are charging a penalty, such as 2% of assets for selling within 15 (or 20, 30) days. Others may limit you to making only a few trades per year. This is a serious obstacle to making a profit in the short/medium term. On the other hand, this "market timing" strategy can be used profitably for 4,6,8 month periods to avoid fund downturns.

Answer 2

The way to compare this is to determine how much the mutual fund has lost (percentage) from its high to the amount of interest the money market account pays. The difference between the two is what you evaluate. Also, factor in the fact that, how do you know when it is right to get back in? How far will it go down before it comes back up. Right now, there is no real assurance of any safety in the market. Sometimes, it takes 3 or more years.

I did the same thing you did or are thinking about doing. I didn't have mine in a mutual fund, but I sold all my stock. During the May "crash" I figure I saved about $60K of loss by pulling out on May 12. In my opinion, it takes quite a market rally to make up that kind of loss on my portfolio. I don't sit around and watch it tumble. I get out and wait until the climate feels warmer. The market conditions that caused me to sell were that there has been no major correction and the market has been at an all time high, and the sensitivity of investors over the slightest bit of bad news; i.e., the recent China crash, and the housing situation with all the loans tumbling for the secondary lenders who loaned to anyone, at any rate and on any terms. All of these things made me very uncomfortable being in the market right now. I prefer to make the 4.96% that my brokerage firm pays for money market rather than sustain the downside slide that I think is inevitable. There will come a time to get back in but not in the near future.