Question

Which of the following options are limitations of a timing strategy? (Choose all that apply.)

A) It requires accurate predictions of future tax rates and economic conditions.
B) It may lead to missed investment opportunities.
C) It can result in increased compliance costs.
D) It is not applicable to individuals with fixed incomes.

Answer 1

The limitations of a timing strategy include the need for accurate predictions of future tax rates and economic conditions, and the possibility of missed investment opportunities.

Step-by-step explanation:

Two of the limitations of a timing strategy are:

1. It requires accurate predictions of future tax rates and economic conditions. Timing the market often involves making predictions about future events, such as changes in tax rates or economic conditions. This can be challenging as it is difficult to accurately forecast these factors.
2. It may lead to missed investment opportunities. By trying to time the market, investors may miss out on potentially profitable investment opportunities. Market timing requires precise entry and exit points, which can be difficult to determine.

It is important to note that while timing strategies have limitations, they can also provide benefits when implemented effectively. It is advisable for individual investors to consult with a financial advisor to assess the suitability of timing strategies for their specific financial goals and risk tolerance.