Vanguard Discovers Market Timing is Hard - Duh!?

Vanguard Mutual Funds is merging its Vanguard Asset Allocation Fund (VAAPX) with its Vanguard Balanced Index Fund (VBINX).  The Asset Allocation Fund (VAAPX) utilized "tactical" asset allocation moves which is Wall Street code for "trying to time the market." The Vanguard Asset Allocation fund tried to increase its allocation to stocks when the manager thought stocks would go up, and increase its allocation to bonds when it thought stocks would do poorly.  The VAAPX fund is currently allocated 90% stocks and just 10% bonds.

  

Conversely, the Vanguard Balanced Index Fund (VBINX) simply uses a static allocation of 60% stocks and 40% bonds and periodically re-balances the portfolio to keep this static 60/40 mix.  Below are the performance results of the two funds at the end of last month.  You can easily see why Vanguard is merging the Asset Allocation Fund into the Balanced Index Fund.  Simply put, Vanguard has discovered that they are no good at getting in and out of the stock market in an attempt to "time the market." Duh!  No one can do this.  Not even Vanguard.

  

VAAPX                      VBINX

3-year             -1.6%                          +4.1%

5-year             -0.4%                          +3.9%

10-year           +2.9%                         +4.8%

I think the VAAPX investors ($8 billion) will be better served in the VBINX fund going forward. Here is the link to the Vanguard announcement. 

The HOKEY POKEY is NOT an investment strategy

You put your money in,

You take your money out,

You put your money in,

And the market shakes you out.

If you do the hokey pokey,

In the long-run you’ll lose out,

That’s what this blog's about!

Wall Street is a bipolar market that veers from despair to euphoria with each passing news headline.  Don't give in to temptation to "get out" of the market with the notion that you will "get back in" once things “settle down."  Ignore every "expert" (yet, invariably underperforming) stock fund manager on CNBC that claims this is a "traders market."  Man up and rebalance your portfolio - which means sell some bond index funds that have risen in value and add to your stock index funds that have fallen in value. Don't become one of the following statistics.

For the 17th time in as many years, Boston-based research firm DALBAR found that the 20-year returns realized by mutual fund investors lagged the markets thanks to ill-timed buys and sells driven by psychology. 

"At no point in time have average investors remained invested for a sufficiently long enough period to derive the benefits of a long-term investment strategy,"

DALBAR wrote in its 2011 investor behavior analysis.  DALBAR went on to say, 

“Investors who hold on to their investments are more successful than those that time the market.”

Don’t be foolish and think you, or anyone else, can successfully “time the market.”

DALBAR’s Quantitative Analysis of Investor Behavior