time in the market vs timing the market

Time in the Market vs. Timing the Market

Many investors operate by the market timing strategy: buying and selling stocks based on predicting stock market movements.

While the idea of raking in profits through intelligent market timing can be extremely tempting, is it the wisest investment approach? 

Could it be that time in the market—a steady buy-and-hold strategy—is more profitable in the long run? 

Let’s explore this question in depth.

What does market timing mean?

We can define market timing as an investment strategy that involves buying and selling stocks according to current market factors, economic trends, and corporate information. In simpler words, it’s the old “buy low, sell high” method.

Market timers often make decisions based on short-term technical analysis. Technical analysis evaluates investments and identifies opportunities by studying trading activity statistical trends like volume, price movements, and implied volatility.

Market timers try to sell at the peak (when the stock reaches what they’d consider to be the high point) and buy at the valley (what the investor thinks is the lowest point). For example, if interest rates climb, investors may sell part of their stocks and purchase bonds before the stock value plummets again.

This strategy requires constant market analysis and swift action. Not just months or days, but even hours or minutes can make a difference in stock value. 

Outcomes are often unpredictable, and it’s hard to achieve consistently high returns. Even many of those who consider themselves financial gurus who have correctly foreseen a market boom or crash find it challenging to recreate their success.

What does “time in the market” mean?

Time in the market is just what it sounds like:

  • A long-term strategy.
  • Constant investment in the market.
  • Riding out the highs and lows.

Investors who take this approach don’t try to predict the highest or lowest points and don’t stress over inevitable market fluctuations.

They stick with their investment and base their decisions on fundamental analysis—measuring a security’s intrinsic value by long-term variables such as macroeconomic factors, the state of the industry, or the company’s management.

Why trying to time the market doesn’t work

Market timing may seem like an attractive option, and you may hear some investors rave about having a “winning edge” that allows them to beat the market consistently. It’s fascinating to read stories of lucky people who bought and sold quickly and got rich overnight.

However, “lucky” is the key term here: stock fluctuations are hard to predict, and nobody, not even the most perceptive financial advisor, really knows what will happen.

Consider Black Monday, when the international stock markets crashed in October 1987. Most economic analysts agree that Black Monday had no obvious cause but investor psychology, which led to panic-driven stock sales. Such events are virtually impossible to foresee.

While some market timing models might have benefits, none of them offer consistency, and all have drawbacks.

Inherent risks

Market timers often see a stock rising in value and hurry to sell because they believe the value is bound to come down. Then the surge continues—which means that the investors miss out on the stock’s peak performance. They sold too early, but they only realized it in retrospect.

At other times, investors overlook stocks as they begin to come out of a low period. Statistically, an upswing usually follows a dip in stock value. Still, it isn’t easy to judge when this will occur in advance.

Staying out of the market comes with the cost of missed opportunities. 

To quote Warren Buffett:

“The stock market is a device to transfer money from the impatient to the patient.”

The cost of time and stress

Market timing isn’t a practical option for the average investor with a full-time occupation unrelated to stock trading.

Professional traders spend a lot of time monitoring stock market performance—more time than most investors can realistically put in. Day trading involves buying and selling financial instruments within the same trading day or even several times during the day. This kind of effort can be exhausting, draining, and stressful.

Commission fees and taxes

If you work with a broker that charges a commission, trading frequently will increase brokerage commission costs. The more stocks a broker buys or sells, the more commission he earns—regardless of whether you gain or lose. These fees add up and will cut into any profits you make.

Taxes are another thing to consider. Depending on the current tax code, short-term capital gains are often taxed higher than long-term ones. If you buy and sell quickly, the higher taxation may eat away at the difference in your profit margin.

The power of buy and hold investing

Conservative buy-and-hold investing is a steady, reliable, long-term financial strategy. It might make you feel like you are missing out on huge profits as you watch certain stocks rise meteorically. Alternatively, suppose markets are plummeting due to a global economic crisis or other factors. In that case, you might panic and wonder whether it is time to pull your investment.

However, various studies have demonstrated that consistent investment is safer, more profitable, and far less stressful than trying to time the market in the long run. If you stay the course and don’t pull out of the market, you will undoubtedly come out ahead.

It may seem logical to leave the market during a recession and avoid losses. However, studies have shown that such a reactive strategy is almost sure to fail. For example, a recent study from the University of British Columbia demonstrates that investors seek stability but tend to have bad timing.

Specifically, most investors pull out when the market is already down and get back to investing after an upswing has already begun. Staying invested throughout market cycle highs and lows is a more profitable long-term strategy.

Long-term figures demonstrate that conservative stockholders can expect to see their investment grow by about 20% in the course of 10 to 20 years. While investing in the stock market creates a roughly 40% chance of losing money, a holding period of 20 years rarely produces negative results—at least it hasn’t in the past century.

Even if some market timing opportunities seem too tempting to pass, be careful. Ask for second and third opinions, calculate what losses you can afford to sustain, and above all, avoid putting all your investment money into this approach.

What’s the best investment strategy?

It appears that, for the private investor, the most sensible strategy is consulting a trustworthy financial advisor and deciding on a long-term investment. Take into account any lifestyle changes you expect, such as starting a family, a career change, or retirement. Then step back and try not to let market volatility, fluctuations in stock prices, and short-term trends overwhelm you.

There are no guarantees. But suppose you have a solid game plan and a well-rounded investment portfolio with a manageable number of equities. In that case, you will likely see your wealth increase within a decade.

This is called the total return approach. You don’t try to time the market or game a particular index, and your overall investment sum is comparatively secure.

Active management vs. market timing

Opting out of the market timing method does not mean you adopt a completely passive investment approach. Staying up to date in market trends and actively managing your money is essential to maintaining a balanced portfolio. It might be wise to make adjustments as market circumstances or your financial situation change.

You might discover you have made an investment that wasn’t right for you and decide to sell out, even at the cost of taking a loss. Alternately, you may need to sell over time to keep your investment portfolio low-risk. However, active management doesn’t involve trying to cash out on short-term highs.

Long-term investment options

Suppose you are interested in making consistent profits over a long period. In that case, you might want to look into the following investment options:

Mutual funds

A mutual fund pools money from many investors and puts it into securities like stocks and bonds. Investors can buy shares in the mutual fund’s portfolio.

Mutual funds are a popular investment choice because they offer:

  • Professional management. The mutual fund’s experts research the market, choose the securities, and track the investment’s performance.
  • Diverse approach. Typically, mutual funds invest in various markets and companies. This approach provides a healthy risk balance: if one company or market slice fails, there’s a chance the others will retain their value.
  • Affordable options. You can make the initial investment and additional purchases for relatively low sums in most mutual funds.
  • Liquidity. As a mutual fund investor, you can redeem your shares at any time.


An exchange-traded fund, or ETF, is a collection of securities that trade on an exchange, similar to stocks. ETFs may contain any investment, such as stocks, bonds, and commodities.

The advantages of ETFs:

  • A comparatively low expense ratio compared to buying individual stocks
  • Fewer broker commissions thanks to a mostly passive management strategy
  • Investment diversification, since an ETF holds multiple securities
  • Access to many industries and various stocks

Suppose you are a buy-and-hold investor interested in a diverse portfolio. In that case, well-chosen ETFs may become a vital part of your investment strategy.

Index funds

An index fund can be structured like a mutual fund or an ETF. Its distinctive feature is that it attempts to match a specific market index. The goal is achieving market-average returns, not outperforming the market.

Index funds offer various advantages, such as:

  • Lower fees than active mutual funds
  • A relatively predictable long-term performance
  • Low risk due to broad diversification
  • Tax advantages thanks to generating less taxable income

Other investments

You don’t necessarily have to limit your investments to the stock market with its trends and fluctuations. You may consider looking into other types of assets, such as real estate, gold, and farmland, which offer substantial value even during global economic crises.

Whatever choices you make, long-term investment will almost certainly pay off in stable dividends and steadily rising profits.