Timing the market vs. time in the market ⏱️
The market has been sad lately. For the second time since I started investing, my market earnings (the money that my money has made) are in the negatives. In other words: I now haven’t made any money in the market and I’m actually losing money. But I’m standing still, and here’s why you should too:
I’ve talked about this at length, but this took me so long to understand and really believe it bears repeating. When you are investing in the stock market, TIMING the market doesn’t matter (getting in and out at the right times), but TIME IN the market does matter (how long you stay invested in the stock market).
What does this mean?
Some fancy finance people like to talk about the market as if they know what’s going to happen. They want you to let them manage your money (and they want you to pay them to manage it), so they talk about strategies for earning and making “smart trades”. They might talk about picking the right stocks to ensure your money grows. They want to play on your fear that you’ll lose money in the market (which you will, at times, for the short term, and that is normal).
The truth is, nobody, and I mean NOBODY knows what is going to happen in the market. If someone claims that they can time the market or stock pick, it’s likely because they’ve gotten lucky in the past and made a good trade or happened to choose a stock that went up. Or, it’s because they’re banking on the idea that you are an uninformed investor and don’t understand how the market works.
People who time the market often use a strategy called “buy the dip”. This essentially means that they wait until stock market prices are low (right now, for example, they’re *relatively* low) and buy in then and hope prices go up.
This might happen. But again, *low* is relative. You could buy because you think prices are low and then they could go a little lower. Or they could go a lot lower. Or they could increase incrementally. You literally just never know. Instead of wasting time trying to predict and anticipate when the market is at it’s highest and it’s lowest (and losing out on time for your money to potentially be making money in the market), you should invest consistently every month (this is called dollar cost averaging) and walk away for, like, a lot of years.
This is not to say that you shouldn’t invest more money when the market is looking down — if I have surplus savings on any given month when the market is relatively down, I’ll invest a little extra that month because it’s sort of like a “sale.” But I don’t wait for these moments to invest — I have an automated investment set up for the first of each month regardless of market patterns.
But you’re losing money! Why wouldn’t you get out of the market before you lose more?
I’m not “getting out” because that would be trying to play the stock market game by timing the market, which, as I’ve said before, I’m not playing. I’m invested in the market for the long run — I want a lot of time IN the market. I’m doing this because I know that market falls are all par for the course — they are routine, they happen semi-consistently, and historical trends show us that these falls always rise again in the long term.
In the past 36 years, the US market ended the year with a positive return 75% of the time. Even when there are short term storms (like right now), the long term weather is sunny.
TLDR:
Timing the market means trying to get in when the market is low and out when it’s high.
Time in the market means how long you keep your money in the market and let it sit there.
Timing the market is proven to be an ineffective strategy. There is no guarantee that you’ll get in or out at the right time, and while you’re wasting time trying to figure out a game that even people who do this work for a living can’t figure out, your money isn’t growing.
My advice? Set up a recurring investment for the same day each month and go live your life.
*Disclaimer* I am NOT a financial advisor, I have no formal training in this space, and I am not authorized to give advice on how to manage your finances. I am literally a woman who realized she didn’t have her financial sh*t together, who felt systemically kept in the dark about money, and who is trying to learn as best she can how to get out of the dark.
