Numerous studies have found that “market timing” should be left to the hedge fund techies, not the average retail investor.  Those studies have concluded the average retail investor should “buy and hold,”  which means they should not sell their investments just because the market is going down.  One primary reason is that they invariably don’t put their cash back into the market at the right time, when the market bounces.  I have long argued this “buy and hold” approach is appropriate for a garden-variety recession, but not for a financial crisis, which happens quicker, goes deeper, and has a longer recovery than recessions.  However, both approaches are based on economic data and financial data.

I’m seeing an interesting new approach, i.e., one that is based on political conclusions.  Some investors have concluded that the Trump Administration will end badly, taking the stock market deep into bear territory.  Unfortunately, they don’t know when to get out of the stock market.  They recognize that selling everything now could cause them to miss a good deal of upside, if the bull returns.  If not now, when?

Income averaging is the standard practice of putting the same amount of money into stocks every month.  Reverse income averaging is selling stocks and increasing cash by the same amount each month or quarter.  This can be done by percentage or by dollar amounts.  The downside is that reverse income averaging means you are selling more shares as they get cheaper.  That is the cost of reducing stock exposure over time, while retaining some protection from a major bull market.

I don’t know any financial advisors who advocate making investment decisions based on political assumptions, and the alternative is to advise clients they cannot act on their own political beliefs. Reverse income averaging may have come-of-age.