Switching Strategies for Individual Investors: Recent Evidence from the Self-directed Family of CREF Retirement Accounts

Abstract

Systematically moving an investment balance from one account to another, and then back again, with the hope of generating returns that exceed those from a buy-and-hold alternative, is the essential description of a switching strategy. In this study, month-end switching is examined within the funds available to TIAA-CREF retirement plan participants. Data are reviewed through the end of 2008. While the transaction cost and tax acceleration hurdles that typically disadvantage switchers are mooted with the CREF strategy, institutional and regulatory impediments have remained daunting. While a simulated CREF Stock/Money Market switching strategy has yielded a positive wealth relative when compared to buy-and-hold over the period of study, the window of opportunity for this particular switching implementation has been closed by a recent SEC rule change. Nevertheless, opportunities to profitably implement switching appear to remain plausible through self-directed retirement brokerage accounts.