Similarly, avoiding rebalancing can be viewed as just the
opposite market timing decision, where you implicitly assume your current balance will continue to perform well in the next period.
The writers attribute the return gap to investors» poor
market timing decisions as they reallocate assets among funds on the basis of recent performance.
Client Behavior: A Case Study For a more focused investigation of clients»
market timing decisions, we looked at a highly reputable asset management boutique with a long track record in value investing.
In other words, the gap is the return impact of investors»
market timing decisions (Table 2).6
If you are interested in how you actually performed when considering
your market timing decisions, then a money - weighted rate of return may be more appropriate (but you can't benchmark it to index returns that are calculated using the TWRR).
In this case, it's used to both avoid making
a market timing decision, by claiming that a market is «too high now.»
* It concluded that 91.5 % of returns come from the asset allocation decision and not the security selection nor
market timing decisions.
For example, deciding whether to buy a bond or a growth stock would be an asset allocation or
market timing decision.
Similar to the stock market, there is no way to predict the answer to your question with sufficient confidence to make
a market timing decision.