Should I Time the Market?

“Should I Time the Market?”

You may have some extra funds to invest. Inevitably, the decision must be made when to invest these funds. If you follow the adage buy low, sell high then you may be tempted to pinpoint the lowest point in the market to maximize profit. You ask yourself, “Doesn’t it make sense to buy at the lowest point I can so I get the highest return? Can’t I just time the market?” There is a short answer and a long answer to this question. You can save yourself time and read the short answer (which you probably already know but will likely ignore or forget when the time comes), but I recommend reading the long answer to hopefully save you from making serious mistakes.

The Short Answer

You probably shouldn’t because you will probably get it wrong and probably be worse off for it.

The Long Answer

The most difficult part of writing this part is that there is so much research, data, and studies suggesting that you shouldn’t time the market. What could possibly get the message across? Here are just a few considerations.

It is basically impossible to pick the lowest point consistently each year

The future is unpredictable and knowing exactly when the lowest point will be is going to require clairvoyance. There are about 250 trading days each year and only one day can be the lowest, which gives you a ~0.4% chance of picking the day correctly at random. Try doing that every year until you retire and you’ll realize it’s practically impossible.

You will likely be too scared to invest when the lowest trading day happens

The implication of the lowest trading day is that there is bad news about the economy which is causing stock prices to be lower – inflation is high, tariff uncertainty, unemployment is high, workers are on strike, and war is breaking out. Ask yourself, will you really invest when all the news headlines are predicting disaster for the economy? Howard Marks, a successful fund manager and investor, put it this way: when the time comes to invest, you probably won’t want to.

The cost of getting the timing wrong can seriously diminish your investment returns

People often hold cash while they wait for the “perfect” time to invest. Since it is practically impossible to pick the best (i.e., lowest) day to invest, there is an opportunity cost to holding cash. Historically, a diversified portfolio of stocks have a higher return than cash and the longer you hold cash, the greater the gap between your return on cash and the return on a diversified portfolio.

There is more than just the S&P 500 index to invest in

The S&P 500 index is generally what people mean when they refer to “the market.” The S&P 500 index consists of the 500(ish) largest publicly traded companies by market capitalization in the USA.

There is much more to invest in than just the S&P 500 index. I present the following table.

Source: Bloomberg, FactSet, MSCI, NAREIT, Russell, Standard & Poor’s, J.P. Morgan Asset Management. 

Large Cap: S&P 500, Small Cap: Russell 2000, EM Equity: MSCI EME, DM Equity: MSCI EAFE, Comdty: Bloomberg Commodity Index, High Yield: Bloomberg Global HY Index, Fixed Income: Bloomberg U.S. Aggregate, REITs: NAREIT Equity REIT Index, Cash: Bloomberg 1-3m Treasury. The “Asset Allocation” portfolio is for illustrative purposes only and assumes annual rebalancing with the following weights: 25% in the S&P 500, 10% in the Russell 2000, 15% in the MSCI EAFE, 5% in the MSCI EME, 25% in the Bloomberg U.S. Aggregate, 5% in the Bloomberg 1-3m Treasury, 5% in the Bloomberg Global High Yield Index, 5% in the Bloomberg Commodity Index and 5% in the NAREIT Equity REIT Index. Annualized (Ann.) return and volatility (Vol.) represents the period from 12/31/2009 to 12/31/2024. Please see the disclosure page at the end for index definitions. All data represent total return for stated period. Past performance is no guarantee of future results. 

Guide to the Markets – U.S. Data are as of September 30, 2025.

Here is how to read it:

·       Each colored square is a different asset class: small cap stocks, real estate, commodities, cash, emerging market stocks, etc.

·       Each column is a different year between 2010 and 2024

·       The performance for each asset class is in the respective box

Take this example. In 2020, REITs (Real Estate Investment Trusts) were the worst performing asset class with a -5.1% return. More confident readers of this article might say that the negative performance in 2020 of REITs must reverse because they can’t possibly perform badly two years in a row and would see it as a buying opportunity. In 2021, REITs were the best performing asset class with a 41.3% return. But 2022 was a different story – REITs were the worst performing asset class with a -24.9% return. 2023 and 2024 weren’t much better relative to other asset classes.

The point is this: the asset class returns are all over the place. Forget about timing the S&P 500 index, how could you possibly pick which asset class is going to be the best performer year after year?

What Can You Do?

As alternatives to timing the market, there are two common and effective methods to start investing. Below are explanations of dollar-cost averaging and lump-sum investing.

Dollar-Cost Averaging

Rather than timing the market, you can choose to invest your funds on a set schedule in equal dollar amounts. For example, you have $3,000 and you decide to invest $1,000 in a diversified portfolio each month over the course of 3 months. This strategy is beneficial because it requires you to come up with a schedule and stick to it until the funds are fully invested. By spacing out your investments, if the market drops, you can benefit from this volatility because you may be buying at a lower price in the future. Psychologically, this can be a beneficial method since many people are uncomfortable with the possibility that their full investment will drop shortly after getting started and therefore end up not investing at all because they are waiting to time the market.

Lump-Sum Investing

Once you have the funds to invest, you can choose to invest it all at once. Research on lump-sum investing suggests that it tends to outperform dollar-cost averaging. There’s no guarantee that this trend will continue and it is not in every case that lump-sum does better than dollar-cost averaging, but so far it tends to perform better. To invest in a lump-sum, it is critically important to understand that short-term market volatility could cause the value to drop. Investors who can hold through market volatility and stay disciplined in the long-term will have a better chance of achieving a higher investment return compared to trying to time the market.

Now What?

It is one thing to know what dollar-cost averaging and lump-sum investing methods are, and it is another thing to know what makes the most sense for you and your situation. It is the belief of Redspire Wealth Management that creating a financial plan that addresses your specific goals, aspirations, and personal situation is an excellent method to start building financial security. A financial plan gives you the confidence to invest your money and to get you on the path to achieving your financial goals.