Key takeaways
Attempting to time the market is alluring but difficult. The best days in markets often occur close to the worst and missing good days can impair performance.
- Market prices are impossible to predict — markets are volatile and it is difficult to anticipate whether a trend will continue, or a turning point has occurred.
- Trying to time the market may result in missed opportunities and consequently lower performance than simply getting and staying invested.
- Timing the market may incur additional costs such as increased transaction fees from more frequent trading, in addition to potential tax implications. These can lower overall returns.
- Time in the market, not timing the market — getting and staying invested may help to preserve.
Timing market moves
Timing the market refers to the practice of buying and selling financial assets with the aim of making gains and/or avoiding losses. It relies on the idea that (at least to an extent) future price movements are predictable.
The idea of being able to time the market is undoubtably appealing, however in practice it's extremely hard to do, as there's no way to know how future prices will evolve.
Trying to capture gains and avoid losses
At its core, trying to time the market is a strategy of attempting to buy 'low' and sell 'high'. This means buying when prices are relatively low and anticipated to rise; and selling when prices are relatively high and expected to decline. In this way investors would be exposed to gains while also avoiding losses.
Attempting to capitalize on short-term price movements in this manner is extremely difficult in practice. Even sophisticated tools and analysis cannot systematically predict price movements.
Academic research highlights the difficulty of timing the market, with one study showing that an investor must be right at least 70% of the time to outperform a buy-and-hold investment strategy.1
What makes timing the market difficult?
Attempting to time the market requires being right twice — about both when to buy an asset and when to sell it. This involves predicting not just the general future overall market, but also when turning points will occur.
Asset prices are volatile, meaning they may move both up and down regardless of their overall directional trend. The best days in markets also often occur close to the worst, making it impossible to predict when trends will change, and missing out on a single strong day can have an outsized impact on overall returns.
If we take 2025 as an example, the US S&P 500 equity index moved sharply down on April 8th. An investor who sold on that day believing the overall trend to be downwards and hoping to avoid further losses, would have missed the rebound on April 9th. Re-entering the market immediately and only missing this one day would have resulted in returns 9.5% lower than staying invested, as of July 29th.
Potential costs
Alongside the potential impairment to performance from missing out on market gains, there can be other tangible costs to attempting to time the market.
Transaction costs for buying and selling assets can reduce overall returns, especially if transactions are frequent. There may also be taxation considerations should sales realize gains.
While it is easy to pinpoint historical high and low points in asset prices and imagine entering and exiting the market at the right moment, timing the market in practice is challenging and likely to underperform simply getting and staying invested.
Getting and staying invested
Investing doesn't require timing the market and can potentially preserve and grow wealth over time. Staying invested for the long term can allow investors to ride out market fluctuations and benefit from long-term capital growth.
Investors concerned about market entry points, may consider spreading investments over time in what is known as a dollar cost averaging approach. This reduces exposure to market prices at any one point, although it also means that getting fully invested will take some time.