Why Time in the Market Beats Timing the Market

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Big fish with "time" on it, eating little fish with "ing" on it, eating money to illustrate "time in the market beats timing the market" topic.

If you considered pulling your money out of the market when Covid-19 hit, you were not alone. So many people felt that way, some acted on it, and that, my friends, is a perfect example of attempting to time the market. And while I realize it is hard to stay invested when things look grim, in my experience, time in the market beats timing the market every time.  

As a holistic financial planner, I have studied this phenomenon extensively because I feel deeply responsible for my client’s success and don’t give advice lightly. In short, the most important things to remember when investing in the stock market are that:

  • You are investing in great companies with tremendous earnings potential.
  • Stock prices reflect those earnings and will fluctuate (but tend to grow) over time.
  • Serious investors do not “play” the market. Instead, they ignore price fluctuations, investment fads, and inflammatory news and focus on the long-term trends.

I realize this sounds simple, and it is, but it is far from easy. It’s only natural to attempt to time the market in reaction to threats, but it’s a trap, and the financial media only makes things worse because they encourage such behavior for profit. So, in the following post, I will explore short-term market timing activities vs. long-term investment strategies in depth, so you can better understand why you should develop a plan, then stand your ground.

Time in the Market vs Timing the Market

What Is Timing the Market?

The phrase “timing the market” refers to any attempt to buy or sell stocks based on predictions about how the market will change. The goal, of course, is to achieve a better return or lose less money than other investors by anticipating market movements. These predictions can arise from just about anything. Let’s look at some example behaviors market timers engage in to give you a sense of what I mean.

Stock market charts to illustrate timing the market.

Common Marketing Timing Behaviors

  • Mining the News Cycle
    One common strategy is to monitor the news cycle and anticipate how the market will react so you can take advantage of opportunities. For instance, some people track the U.S. federal reserve’s announcements about upcoming interest rate changes. Then, they decide where and when to invest, depending on whether they expect rates to rise or fall.

  • Chasing Funds with High Returns
    Another approach is to buy mutual funds that are performing well while selling those that are performing poorly. In this case, investors essentially chase performance by moving money around in response to the ebbs and flows of the market.

  • Deal Seeking
    Some bold investors scour the market in search of individual stocks that are under or overvalued, using an array of criteria, including the almighty “hunch.” The idea here is to buy when market prices are unreasonably low, then sell quickly when the correction occurs.

  • Using Cash as a Safety Net
    When the markets are volatile or in times of recession, some people delay investing or retreat from the market altogether even though they don’t need the funds in question anytime soon. Since they are concerned about losing money, they think it is better to avoid the turbulence and wait for better times.

We are just scratching the surface, of course. There are hundreds of strategies for attempts at beating the market, ranging from those that seem pretty logical to others that are downright shady.

However, some people engage in market timing behaviors unintentionally. For example, they don’t intend to trade actively but lack a strategy, so they react to scary financial news by moving money around. They don’t realize that the media outlets share this information because it keeps them watching, which results in advertising revenue from companies pushing investment products. Unfortunately, that leaves them unwittingly exposed to the pitfalls of market timing, which include missed opportunities, increased risk, and excess costs.

Is It Ever Worth Timing the Market?

The trouble is, timing the market doesn’t work. Everyone hears stories about people who struck it rich by buying low and selling high, but those are exceptions and a distraction from what works best. In reality, perfect timing is nearly impossible, and many strategies result in buying high and selling low, which is the opposite of what we are trying to do here. Furthermore, every move is an opportunity for error, so trying to time the market typically leads to poorer performance.

But don’t take my word for it. Consider the following chart from the Dalbar QAIB 2022 study. Researchers compared the 30-year average annualized return for investors vs. the performance of the S&P 500 index and found that the S&P 500 outperformed investors by over 3% per year.

To put this in dollars, if the average investor tucked away $100,000, they would have $789,465 in 30 years, but the S&P 500 would be worth $2,082,296. That’s over one million dollars in lost earnings!

Why Timing the Market Doesn’t Work

Why did the S&P 500 perform so much better? Because the average investor makes emotionally driven decisions, whereas the S&P 500 tracks natural company growth over time. 

There is always something concerning going on in the world, so I don’t blame anyone for trying to protect themselves from volatile market conditions. But unfortunately, few investors have the skills to do so effectively. For example, consider the following news from 2011:

  • The S&P 500 dropped about 18% in 4 months, from 1363.61 on April 29th to 1131.42 on September 30th.
  • In August 2011, the United States was stripped of its AAA bond rating, sending the S&P 500 down 4.31% on August 4th, then another 5.5% on August 5th, a shocking development dubbed Black Monday.
  • On October 5th, Steve Jobs, co-founder of Apple, passed away, sparking concerns about the company’s prospects.

Investors weren’t exactly enthusiastic about owning stocks, even Apple, one of Wall Street’s darlings. In October of 2011, Apple reported quarterly earnings of $6.62 Billion. Remember, Apple, although certainly a high-profile stock, is nothing more than a company that sells products for a profit. Coming out of the dark clouds it faced in 2011; Apple continued to sell products for a profit over the years. In April of 2022, they reported earnings of $25.01 Billion.

That means Apple’s profit has essentially doubled twice over the last ten years. The value of the company, reflected by the stock price, has also grown exponentially since 2011. It makes sense that the company should be more valuable given how much more money it makes.

If you were an Apple investor in 2011 and could manage your emotions enough to hold on to that investment, you would be pretty happy with that choice today. Other companies have similar stories. Here is an exercise to try when you are worried about your investments: print a list of S&P 500 businesses, put a check next to those you patronize, and ask yourself if you plan to stop buying from them anytime soon.

Buying companies means buying earnings growth. The best time to invest money is when you have it. Don’t overthink it. That is the path to building long-term wealth

Of course, disappointments will also occur, and no one can guarantee future results, which is why we diversify. We typically invest in funds that mimic broad indexes. Historically, the successes outweigh the failures, which results in sustained growth.

There is no quick and easy solution for investing. You must have a plan, discipline, and fortitude. Reacting to news cycles, buying the latest investment products, and attempting to beat the market is akin to engaging in crash dieting or get-rich-quick schemes. These strategies appeal to us because they gloss over the hard work required to do great things, catering to our fears and laziness.

Image of cash to illustrate establishing a cash research so you can remain in the market for the long haul.

What Does Time In the Market Mean?

The phrase “time in the market” refers to an investment process that favors slow but steady growth by employing a buy-and-hold strategy. In other words, the investor:

  • Puts aside some cash reserves.
  • Accepts the ups and downs of the market as “normal.”
  • Realizes that companies need time to grow. 
  • Does not attempt to time the market.

Instead, they steadily save money for the future in a diversified portfolio that works in concert with their holistic financial plan.

That does not mean you should drop your money into the market and totally forget about it. On the contrary, ideally, your plan will show how you expect these investments to help you meet your goals and live a happy life. Then you will adjust as things evolve.

What Strategies Can Help You Maximize Returns?

The most important thing is to just get into the market. And be sure to review historical data so you can gain perspective and avoid making decisions from a place of fear when things get rough. Fearful decisions lead to selling low and buying high, crushing any chance of a good return. To that end, below are some healthy investment strategies that don’t involve timing the market.

  • Dollar-Cost Averaging
    Suppose you come into a large sum of money due to a bonus, inheritance, or some other event and wish to invest it into the market. Dollar-cost averaging is a great way to do so without obsessing over timing.

    Dollar-cost averaging involves a plan to invest money at regular intervals, knowing that while the stock prices will vary each time, the highs and lows typically average out. That happens naturally when you regularly put money into a 401k, so all you are doing is mirroring that approach with a discrete set of funds.
  • Rebalancing
    Over time, the mix of funds in your portfolio will shift one way or another due to market movements, dividends, and continued investments. So, it absolutely makes sense to reassess your accounts periodically and adjust your mix based on whatever new information has come to light.

    For example, if you are near a point when you need to pay for college or another big goal, this would be an excellent time to pull out any funds you need soon and adjust the balance to accommodate the shortened time frame.
  • Strategically Harvesting Losses or Gains
    Selling some of your investments at a loss or harvesting a gain for tax purposes could be wise occasionally. For example, if you come into a large sum of money that will result in a hefty tax bill, taking a loss can offset that cost.

Is There Ever a Time to Get Out of the Market?

Person wearing a mask to illustrate a disaster, like a pandemic.

Sometimes clients ask me if there is ever a good time to exit the market, perhaps in anticipation of a big blow to the economy such as war, pandemic, or another disaster. But, in my view, emotional decisions like this typically backfire because it is impossible to know when to get out and when to return, leaving you at risk of making the wrong decision twice!

Don’t get me wrong; there is no judgment here. The world is scary, and the desire to either run away or protect what is yours from a perceived threat is a natural and arguably primal response, whereas doing nothing leaves you feeling exposed. Furthermore, one could argue that if you time it right, you could, indeed, benefit.

However, history has shown us that such attempts are largely unsuccessful. Worse yet, they often result in market investors selling low and buying high, which weakens their position, leaving them worse off than they would have been if they stood their ground.

The time horizon needs to dictate how you invest your money. If something changes to shorten a time horizon (early retirement, job loss, etc.), that is when a discussion about lowering risk may be appropriate. In other words, make investment decisions based on your financial plan, not in reaction to news headlines. One we can control, the other we cannot.

The Bottom Line: Time in the Market Beats Timing the Market

At Golden Road Advisors, we urge clients to apply a long-term view to any stock market investment decision. And we mean 10, 20, or in planning for multiple generations, even 50 years, because you are investing in companies, and companies need time to grow. Attempting to time the market only leads to missed opportunities, increased risk, and excess costs.

It is difficult to resist the siren song of a quick win or the allure of retreating to your cave when things get scary. So, if possible, find a good financial advisor and ask them to help you build a financial plan. That plan should include a cash reserve (so you can stomach some ups and downs), a diversified investment portfolio, and a strategy for how you will manage your emotions and reactions in response to the chaos our world inevitably delivers.

If you would like to explore working with us, please visit our why page to learn more or reach out to schedule a free consultation.


  • Kevin Caldwell

    Kevin Caldwell is a principal at Golden Road Advisors and a CERTIFIED FINANCIAL PLANNER™ (CFP®️) practitioner with over 15 years of experience in the financial services industry. In addition to providing advice and guidance to clients, he regularly contributes to publications such as Kiplinger, Yahoo! Finance, Dalbar, and MarketWatch.

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