Market Timing: Facts vs. Myths


o you believe market timing can enable you to beat the market? Really? I can assure you there is no magic formula that predicts the exact time to buy low, sell high. Stock prices are volatile as we are all too often reminded. Studies have shown that trying to time market entries and exits is a fool’s game, and in, fact may add up to some steep financial losses over the short term. 

Many top studies refute the market timing myth. For example, it is documented that between 1994 and 2013 the S&P 500 increased at an average annual rate of 9.2%, which would have increased an initial $10,000 investment to $58,137. 

But if an investor had missed the 10 days with the biggest gains in that time frame, they would have only realized an average annual return of 5.5% meaning that their initial $10,000 would have only grown to $29,121.

This is the great danger of market timing. You may well be out of the market and miss some of the best days following a downturn while you wait for indications that a recovery is clearly underway. 

As the famed founder of Vanguard, John Bogle, has often said, “Sure, it’d be great to get out of stocks at the high and jump back in at the low... [but] in 55 years in the business, I not only have never met anybody who knew how to do it, I’ve never met anybody who had met anybody who knew how to do it.” 

So be patient. Study after study has shown that you are most likely to earn the highest returns by making judicious long-term decisions and staying the course. The longer you are in the market the brighter your financial future. 

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