Weekend Reading: How Market Timing Destroys Wealth

This article appears as part of Casey Weade's Weekend Reading for Retirees series. Every Friday, Casey highlights four hand-picked articles on trending retirement topics and delivers them straight to your email inbox. Get on the list here.
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Weekend Reading

You’ve probably heard it before, but it holds steadfast and true: Boring is often better when it comes to investing.


While delving into market timing and watching for the ideal moment to make your move can feel exciting, attempting to predict the market’s direction to time a buy or sell is a risky – and incredibly difficult – approach.

The reality: You’ve most certainly seen the headlines. Some financial forecasters predict an uber-bear market on the horizon, while others foresee a continuation of the bull market. You might be wondering, how accurate are these estimates? When you look at history, data from the past seven bear markets show the majority of market loss and gains occur in very short periods of time (around 40 trading days), which means avid market timers must have uncanny accuracy. This article references author Roger Gibson’s findings that in order for market timing to pay out and be effective, investors must:

📌Predict the market correctly 80 percent of the time for bull markets, and 50 percent of the time for bear markets – Or…

📌Predict the market correctly 70 percent of the time for bull markets, and 80 percent of the time for bear markets – Or…

📌Predict the market correctly 60 percent of the time for bull markets, and 90 percent of the time for bear markets

With these predictions, it doesn’t mean timing correctly on the dot once, but multiple times to see a positive outcome. Selling and reentry to the market would require extraordinary predictions, as well as the psychological capacity to sell at tops, then buy at bottom in some of the most financially stressful situations. While some have success with this strategy over the short-term, the likelihood of these tactics remaining consistent and profitable over the long-term is not just slim, but it also means putting your lifelong savings at immense risk.

Bottom line: Your plan should be designed to succeed, regardless of short-term fluctuations in the stock market. If you feel action is needed every time fear gets the best of you, that means it’s time for a new plan.