Investors frequently hear the cautionary advice from financial experts: attempting to time the stock market is usually a fool’s errand. The unpredictable nature of market fluctuations makes it nearly impossible to anticipate downturns, their severity, or the duration of any subsequent recoveries. Instead, many advisors advocate for a strategy known as dollar-cost averaging, where investors consistently allocate funds at regular intervals regardless of market conditions. This method allows individuals to benefit from long-term market growth, as it inherently smooths out the impacts of volatility.
However, one financial manager specializing in high-net-worth clients believes there’s a way to blend both investment strategies. Jeffrey Fratarcangeli, the founder of Fratarcangeli Wealth Management, employs a dual approach for his clients, whose average net worth is around $10 million. Rather than investing clients’ monthly contributions entirely in stocks at once, Fratarcangeli typically allocates 60% to 70% of those contributions to equities while reserving 30% to 40% in a money market account to earn interest.
This strategy not only mitigates the emotional pitfalls often associated with investing—similar to dollar-cost averaging—but also positions him to capitalize on market downturns. Fratarcangeli emphasizes the importance of automation in investing, stating, “What I have found is human hands can screw things up, so do it automatic, and then have that human hand ready to take advantage of scenarios that we’ll see every year.”
Typically, he waits for market pullbacks of around 3% to 5% to begin adding to positions, gradually becoming more aggressive during pronounced declines of 10% to 20%. For instance, last April’s sudden drop in tariffs provided a significant opportunity for him to invest for his clients. He made substantial trades on multiple days during the decline, reflecting more than double his average trading activity.
Fratarcangeli also utilizes psychological indicators—specifically the sentiments of fear and greed—as part of his investing strategy. He observes that when clients begin to express anxiety about the market and urge him to sell, it often signals a buying opportunity. Conversely, when cautious clients express a sudden desire to increase their investment risk, he interprets this as a signal to sell.
His strategy primarily caters to clients with an investment horizon of at least four to five years, as investing over shorter time frames can pose significant risks.
While market timing is not universally advisable for all investors, as many may not stay attuned to market shifts or manage their investments daily, those who effectively navigate these waters can reap rewards. A recent study conducted by Charles Schwab compared five investment strategies over twenty years and found that the investor who consistently bought at annual market lows achieved the highest return, amassing approximately $186,000. In contrast, those who invested uniformly at the start of each year or divided their investment into monthly increments garnered around $170,000 and $166,000, respectively.
Despite the potential upsides of market timing, there remains no assurance that it will yield favorable outcomes every time. Indeed, investors who entered the market at annual peaks ended up with about $151,000, significantly less than those who employed dollar-cost averaging.
While average investors may find more success through dollar-cost averaging, Fratarcangeli’s unique method may appeal to those who wish to take an active role in their investment strategy while capitalizing on market fluctuations.
Regarding current market opportunities, Fratarcangeli suggests a shift away from the overvalued technology sector, focusing instead on sectors like industrials, materials, healthcare, agriculture, and metals, which he views as offering better value. He asserts the importance of maintaining a diversified portfolio and highlights that some sectors are trading at notably lower price-to-earnings ratios compared to the tech industry, which is facing much higher valuations.
