Glossary · Investing and personal finance
Market timing
Market timing is moving money in and out of the market to dodge falls and catch rises, based on predictions of where prices will go next.
Also called: timing the market, tactical trading
Invested the whole time, Oct 1996 to Oct 2026, dividends reinvested.
In Treasury bills for those 10 months out of 360: 54% less.
In plain words
If you knew when the market was about to fall, you would sell before and buy back at the bottom. That is market timing, and it is the dream of every investor. The catch is that it requires being right twice: when to get out, and when to get back in.
The best and worst months tend to come close together, often in the middle of a crisis. Of the 10 best months for US stocks in the last 30 years, 6 came within a year of one of the 10 worst. Sit out the scary stretch and you miss the rebound too.
Missing a few great months is costly. $10,000 in the S&P 500 for the last 30 years grew to about $186,117 with dividends. Missing only the 10 best months, sitting in Treasury bills instead, it grew to $86,040.
Example
Right twice
- Suppose you are a good forecaster: right 70% of the time about when to sell.
- You also have to be right about when to buy back: again 70%.
- The chance of getting both right: 0.7 × 0.7 = 49%, worse than a coin toss.
- And each wrong call costs: selling too early misses gains, buying back too late misses the rebound.
This is why even professional fund managers, with all their research, rarely time markets well for long.
One level deeper
The chart also shows the other side: missing the 10 worst months would have turned $10,000 into $624,901. Perfect timing would pay handsomely. But because the worst and best months cluster, a timer who skips a bad stretch tends to miss good months too: missing both the 10 best and the 10 worst gave $288,886.
Studies of investors, and of newsletters that tell readers when to buy and sell, find that very few beat simply holding, once costs and taxes are counted. The old saying puts it as “time in the market beats timing the market.”
Not every change of timing is guesswork. Rebalancing by a fixed rule, or investing on a schedule, also decide when money goes in or out, but by rule rather than by forecast.
$10,000 for 30 years: always invested, or out for a few months
What $10,000 in the S&P 500, with dividends reinvested, became over the last 30 years if it sat in Treasury bills during the best or the worst months. The best single month was Apr 2009, at +12.3%.
The numbers behind the chart
| Value | |
|---|---|
| Stayed invested | $186K |
| Missed the 5 best months | $118K |
| Missed the 10 best months | $86K |
| Missed the 20 best months | $48.2K |
| Missed the 10 worst months | $625K |
| Missed the 10 best and 10 worst | $289K |
Why it matters
It is the most tempting mistake in investing: every crash looks obvious afterwards.
Getting it wrong is expensive, because a large share of long-run gains comes from a small number of months.
It explains why most long-term plans stay invested and change the mix only by rule.
A common mistake
Myth: Selling before a crash is easy if you follow the news.
In fact: By the time the news is bad, prices have usually fallen already, and the rebound often starts while the news is still terrible. US stocks hit bottom in March 2009, while unemployment kept rising until October 2009.
Questions people ask
Can you time the stock market?
A few people have done it now and then; almost nobody does it reliably for decades. Being out of the market for a handful of the best months can cost more than the crashes avoided.
What happens if you miss the best days in the market?
You lose a large part of the return. On monthly data, missing the 10 best months of the last 30 years cut the result by 54%. Studies with daily data find big effects from missing just the 10 or 20 best days.
Is it better to wait for a crash before investing?
Waiting has a cost, because markets rise in most years. Since 1934, investing a lump sum at once beat spreading it over the next 12 months in 70% of start months. Nobody knows when the next crash will come, or from what level.
Read more on BigCapital
About the numbers
- The numbers on this page are recalculated from the data every night; the sources are listed at the end of the page.
- 3-month Treasury bill, secondary market rate: Board of Governors of the Federal Reserve System, H.15 Selected Interest Rates, series TB3MS; retrieved from FRED, Federal Reserve Bank of St. Louis.
- S&P Composite price and total return since 1871, and US consumer prices: Robert J. Shiller, Online Data (shillerdata.com); total return with dividends reinvested monthly, calculated by BigCapital.
- This page explains a term. It is not investment advice.