Should I Try To Time The Markets? 

You may have heard people say this before, but trying to time the markets is incredibly difficult and very few people are able to succeed in this way. Those that do, typically, are highly experienced money managers, working for big investment firms with access to vast resources and data that the average investor does not have. The idea with trying to time the market is that an investor thinks they can speculate on when certain businesses, industries, or the market as a whole, will go up or down in the near future and with that information will put money in or take money out accordingly. In practice however, especially for the average retail investor, this proves extremely difficult and often results in investors losing money.  

What I have come to learn, and that I hope I can impart on others, is that you don’t need to try and time the markets. Instead, time in the market, rather than timing the market has proved to be a much easier and usually more successful strategy for the average retail investor. By this I simply mean that putting money into the market and letting it sit undisturbed has provided some of, if not the best historical returns. One statistic that I like to use to demonstrate this point is S&P500 data from 1990-2018. If you had invested $1,000 in an S&P index in 1990 and let it sit until 2018, it would have grown to $13,137. However, that same $1,000 over the same time frame with the only difference being the money wasn’t invested for the 5 single best days over those 28 years, then the total value would only have reached $8,715. So over 28 years and missing only those 5 days in the market, the investment missed out on almost $5,000 of capital appreciation. The reason this is relevant is that if an investor trying to time the market has anticipated a down trend and pulled out only to end up missing one really good day, this can have a serious impact on their returns over the long term. 

The most important point that I hope you come away from this with, is that success in the stock market is most often attributed to long term compounding growth, not short-term swings in the market. Now, I don’t want you to think that it is impossible to time it right because it certainly is possible; the point however is that it is incredibly hard to do, incredibly time consuming, and often involves a bit of luck. The safer, time-tested solution is to invest for the long term without worrying as much about short term volatility. Historically speaking, the best way to do this has been to invest in well diversified portfolios and let it sit for long periods of time while avoiding excessive trading.