You may be tempted to try an investing strategy that, on the surface, seems like it makes a lot of sense: Time The Market. But markets keep hitting all-time highs, so waiting for a dip often just means missing out on gains. You might be sitting on cash wondering if now is the right time to invest. That anxiety about buying at a market high? It’s completely normal.
Now, let’s look at what actual numbers tell us about timing the market. Research from the Center for Financial Research at Charles Schwab studied what happens when five investors take completely different approaches to timing the stock market. The results show that just staying invested is far more important to your results than when you invest.
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The Five Approaches (20-Year Study)
Schwab researchers created a simple and easy to test experiment. They took five hypothetical investors, each of them receiving $2,000 at the beginning of every year for 20 years, from 2005 through 2024.1 Each of them putting their money into the S&P 500, except for one who stayed entirely in treasury bills. Let’s look at what the results showed.
The Five Approaches
Peter Perfect timed the market perfectly, investing on the single lowest market day each year. On April 4, 2005, he bought at the bottom. On June 13, 2006, he did the same thing. Twenty years of impossible perfect timing. This is of course practically impossible to pull off since we can’t predict the future.
Ashley Action invested right away on the first trading day of each year. She did no analysis, she didn’t wait, she just got in the game.
Matthew Monthly used dollar-cost averaging. He split his $2,000 into 12 equal monthly investments of about $167 each. It’s similar to when you contribute to a 401(k) through payroll deductions.
Rosie Rotten had the worst possible timing. Every single year, she invested her money at the market’s peak.
Larry Linger kept all his money in treasury bills, he kept waiting for that perfect moment that never came.
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The Results: Immediately Investing Pays Off
After 20 years, Peter Perfect would have accumulated $186,077. But Ashley Action would come in second with $170,555—only $15,522 less despite never attempting to time the market. Matthew Monthly would have earned $166,591 through his monthly approach. Even Rosie Rotten, who invested at the absolute worst time every year, would end up with $151,343. Larry Linger finished last with just $47,357.
The difference between perfect timing and just investing immediately? Only about $15,000 over 20 years. And staying invested in stocks, even with terrible timing, absolutely crushed it compared to sitting on cash by more than triple.
A 20-year study by the Schwab Center for Financial Research shows that investors who stay invested in the S&P 500, even with imperfect timing, significantly outperform those who attempt to time the market or stay in cash. Individual results assume $2,000 invested annually, with dividends reinvested. Past performance is not indicative of future results.
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What the Data Tells Us About Market Timing
Markets Rise Most of the Time
First and foremost, markets rise in 75.6% of typical 12-month periods. Since 1957, the S&P 500 has actually averaged returns of more than 10% annually.2 Having said that, past performance doesn’t guarantee future results. But waiting on the sidelines typically means fighting the odds, and given the experiments’ results? We can see that doesn’t work too well.
The US market includes all common stocks with complete monthly data. Delisted stocks with codes 200–399 are considered “good” delists; codes 400+ are “bad” delists. Outperformance is measured relative to the value-weighted market at each cross-section, averaged across rolling multiyear periods.
Consistency Across Time Periods
Schwab researchers also tested 80 rolling 20-year periods going back to 1926. What they found out was; in 70 of those 80 periods, the ranking stayed exactly the same. Even more, in the remaining 10 periods, immediate investing never finished last.
The Cost of Missing Best Days
This is where a market timing strategy gets dangerous for you.
If you miss just 10 of the best days in the market over a 30-year period, your returns get cut in half.3 Miss 30 best days and your returns drop by 82%. I think we can all agree; that’s a very significant difference.
Think about that. Ten days out of roughly 7,500 trading days cut returns in half. When you try timing the market by moving to cash during scary periods, you risk being out on those critical days when gains happen fast.
As of December 31, 2024. Return percentages are based on a 37-year period: 11.1% if all days in the market, 8.9% if the 10 best days were missed, 7.3% if the 20 best days were missed, and 6.0% if the 30 best days were missed.
Best Days Happen in Bear Markets
Here’s the cruel irony of market timing.
About 78% of the stock market’s best days occurred during bear markets or during the first two months of a bull market.
Only about one in five of the market’s best days happened during calm investing conditions. Fear causes selling during declining markets, which means many investors are out precisely when the biggest rebounds happen.
This is why having an emergency fund matters. Three to six months of expenses in a high-yield savings account prevents forced selling during downturns.
Individual Stock Risk
Some investors try timing the market with a particular security. Research going back to 1927 shows that only 21% of individual stocks survive and outperform over 20-year periods. More than half of all stocks get delisted entirely.
ETFs and mutual funds eliminate single-stock risk by spreading investments across hundreds of companies. When one company fails, it barely registers in a diversified portfolio.
Four Practical Investing Strategies
Invest Immediately When Possible
Time in the market beats timing the market. Ashley Action’s approach of investing immediately came within a small margin of perfect timing. If you have money intended for long-term investing, getting it into the market matters more than finding the perfect moment. Cash and low-return investments consistently perform worse over a long period.
Use Dollar-Cost Averaging for Lump Sums
Not everyone feels comfortable investing a large lump sum at once. Matthew Monthly’s approach works nearly as well as immediate investing. By spreading purchases across regular intervals, you remove emotion from investment decisions.
If you’re nervous about market movements or have a windfall, splitting it into monthly investments over 6-12 months is reasonable. Many investors already do this through 401(k) contributions without realizing it. Every paycheck, money goes into your portfolio automatically.
Focus on Broad Index Funds
Your asset allocation across different asset classes matters far more than picking individual stocks. For most investors, a portfolio built around U.S. stock market, international, and bond index funds provides diversified portfolio exposure without individual stock risk.
It’s better to invest at bad times in broad index funds than not invest at all. Seek advice from a financial professional if you’re unsure about your investment objectives or need personalized investment advice.
Keep Emergency Fund Separate
Before investing aggressively in stocks, make sure you have 3-6 months of essential expenses in a high-yield savings account. You won’t need to sell investments during market downturns to cover unexpected bills, and you can stay invested through uncertain periods knowing your immediate needs are covered.
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What It Means for You
The Schwab study reinforces what decades of market data have shown: being invested beats perfect timing.
Even Rosie Rotten, who bought at the worst possible moment every year, outperformed Larry Linger who stayed in cash. The cost of staying on the sidelines far exceeds the cost of imperfect timing.
You don’t need to buy low and sell high with perfect precision. You need a system that gets your money into a diversified portfolio and keeps it there through different market cycles and market conditions.
Ready to start investing? Check out our guide to the best brokerage accounts to find the right platform for your needs. Set up automatic monthly contributions to a broad market index fund. Review your financial goals and make sure your asset allocation matches your time horizon and risk tolerance.
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