Wise words from a recent speech by Vanguard's Jack Brennan:

"The plain truth is that you can't know when to jump into the market or jump out of it except in retrospect. To succeed, market-timers must make four correct decisions. They must guess when to get out of the stock market and where to move their money: CDs? Treasuries? Long-term bonds? Then, they must know when to get back in and what to buy. But that's still not the entire story. They also must be correct often enough to overcome the significant costs they incur when they transact. Market-timing doesn't consistently enrich anyone -- except, perhaps, the brokers who handle the transactions and the tax collector who nicks any capital gains you earn."

"I would like to be able to say that investors have learned this lesson, but that's not so. Cash flow continues to follow performance. Cash poured into bond funds all summer long and continued into October. It would be interesting to know how those market-timers fared, given that the stock market began to rally October 9. An investor in an S&P 500 Index fund who sat tight for the period earned a 12% return in the next month. But the person who sold her index fund shares on October 8 and bought the best-performing asset -- long-term Treasury Bonds -- was down -0.6% as of November 8, 2002. [Source: S&P 500 Index; Lehman Long Treasury Index.] On a $100,000 account, that's a difference of more than $12,000. Remember, we're talking about a one-month period!"

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