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Investing comes with a big question: should you time the market—trying to buy low and sell high—or focus on time in the market, holding investments for the long haul? While both approaches can be rewarding, their effectiveness and risks differ, especially for long-term investors and those who don’t consider sitting by their computer watching the market minute by minute, researching stocks, markets, and trends in their day jobs.
This chart and the accompanying article from Visual Capitalist show how trying to time the market and missing out on some of the best days of the market can drastically impact total portfolio value.
Timing the Market
Timing the market can seem exciting. Imagine catching the perfect low, watching your investments soar as prices rise. Yet even professional investors struggle to predict market highs and lows consistently.
The real deal here is you would have to know and understand a DEEP level of market trends and company insights and be able to spend hours making predictive (correct decisions) to come out ahead. The more likely scenario is the more common investor “times the market” when an investment becomes trendy,” which is well past its optimal investment period. Timing the market requires almost 100% correctness to come out ahead of a properly planned “time in the market” strategy.
Time in the Market
On the other hand, time in the market involves sticking with your investments through the ups and downs. Staying invested for years—even decades—gives your money time to grow through compounding returns. Data shows that markets cyclically trend upward over time, meaning long-term investors benefit from patience and time.
Why Time in the Market is Better for Long-Term Investors
Long-term investors usually fare better with a time-in-the-market strategy. By remaining invested, you can benefit from the market’s overall growth, avoiding the potential downsides of poorly timed trades.
If you’re intrigued by trying to time the market or want to try your hand at learning the trade, consider setting aside a small “fun money” account. This way, you can learn and experiment without risking your long-term financial goals! Otherwise, listen to the history. The data is there, and while history can’t predict exactly what will come in the future, time doesn’t lie.