Does the fact that CSS offers four investment funds mean that members are expected to frequently “trade” between the funds; regularly moving their CSS assets from, say, the Balanced Fund to the Money Market Fund, and the Money Market Fund to the Equity Fund, etc.?

The answer to that question is a resounding “No!”

CSS offers several funds for a couple of reasons: 

1. Members approaching retirement need a way to de-risk their portfolio in preparation for the purchase of a monthly pension and/or to set aside a spending reserve; and 
   
   

2. To align their CSS portfolio with their own personal risk tolerance and financial situation. For example, a member with a long investment horizon might utilize the Equity Fund in conjunction with the Balanced Fund to increase the risk in their holdings in search of higher long-term yields. 

It is important to note that in both cases above, there is no implication or expectation that members would be frequently moving their CSS holdings between the four funds. The personalized allocations to the funds are intended to be long-term decisions that achieve long-term benefits. Fortunately, CSS does not have a high proportion of members that engage in frequent asset changes. However, those that do, inevitably hurt their long-term wealth creation efforts. So, why do some members frequently move their CSS assets between funds? Is there a benefit to doing so?

Let’s start with why some members frequently move assets amongst the four funds. When markets are volatile, as they have been lately, some investors have a very difficult time maintaining a long term buy-and-hold discipline. Something that is wired into all humans is that we experience a higher degree of pain from a loss than the corresponding happiness we experience from an equally sized gain. This can lead us to want to act to stop the pain (this is selling low and not a good long-term strategy).

​On the flip-side, again when markets are volatile, it is natural for many of us to start doing the mental gymnastics of "woulda-coulda-shoulda." If I would have bought that stock last week, I could have sold it this week for a 10% gain! I knew it was priced too low; I should have bought it. Next time I see an opportunity like that, I will not let it pass me by. What makes this scenario worse is we will inevitably hear from someone we know that they did act and are now relaying to us how much money they made. 

Now, you may say to yourself, I can control my fear of loss and I can control my greed, so I believe there is a benefit to me to engage in regularly moving my holdings amongst the funds. When I know that markets will decline, I will move my money from equities to money markets to avoid the downturn. And, when I know markets will rise, I will move my money market holdings to equities to capture the gains. This is called timing the markets and, to put it bluntly, it’s a sucker’s game. Hopefully, the underlined, italicized words provide the clue as to why this strategy doesn’t work. For more information on why this doesn’t work and to get a perspective on the significant damage you can do to your retirement nest egg in trying it, we refer you to: The risks of market timing and Investment decisions (choose the tab on this page called “Market timing risk”). 

Markets do move in cycles, but their start and stop times are not precise like the setting of an alarm clock.

The past couple of decades have been unsettling for many investors, to say the least. The tech bubble, introduction of iPod, iPhone, and Facebook, the great financial crisis, environmental disasters, meltdown of a nuclear power plant, booms and busts in oil prices, COVID, war in Ukraine, the list goes on. If you are interested, there is a good list on Wikipedia.

The point is, we cannot know when these things will take place nor what impact they will have on investment prices, so it’s a fool’s errand to try to time when to get in and out of investments in a beneficial way. 

Rather than trying to predict the highs and lows of the markets, it’s most important to stay invested through full market cycles. Markets do move in cycles, but their start and stop times are not precise like the setting of an alarm clock. Missing the best days in the markets through poorly timed investment changes can be very destructive. Focus on the time you stay invested (time in the market), not attempting to time the markets – your future, retired you will thank you for it!

Article from the Spring/Summer 2022 issue of TimeWise.