The main idea: Timing the market can be risky and takes a lot of effort and skill (or luck!) to be successful.
History is not on the side of timing the market. Study after study after study after study—you get the point—has shown the risks of timing the market and how a more general buy-and-hold strategy can help investors increase their portfolio performance.
The risks of timing the market include:
- Poor timing and investing when asset prices are at a higher point.
- Missing high-performing periods, even single days or months, when the market increases.
Timing the market also takes a lot of work:
- Successful market timing usually requires analysis and forecasting techniques that can be quite advanced.
- Market timing also requires a dedication of time as you need to be constantly tracking and analyzing the market.
Instead, consider these two approaches. Both can work well if you have long-term investing goals.
- Lump-sum investing is depositing the entire balance of cash at once. This method works well if you have extra cash and are looking to maximize the time your funds are invested. It lowers the likelihood that you miss out on any high-performing periods. Keep in mind that your entire lump sum is at risk if the market decreases.
- Dollar-cost averaging is depositing the same amount of money at fixed intervals (weekly, monthly, etc) over a period of time. This approach works well if you want to take less risk with a lump sum of cash and protect against short-term market declines, or if you only have money to save after each paycheck.
Either way, both options are less risky than timing the market and less work for you to manage.
