Probably not. Even the top professionals in the industry have a hard time predicting what the stock market will do in the short term. For most investors, a long-term strategy that fits your goals is best.
One of the many challenges of trying to time the stock market is knowing what will happen and when. In one of my favorite scenes from The Big Short, we hear, “I may have been early, but I’m not wrong.” And the response comes, “It’s the same thing.”
You can test your knowledge of past events using this game. Even with perfect knowledge about the future, most players get a score similar to a buy-and-hold strategy.
In some instances, getting the timing wrong can cost you big. Dimensional Advisor’s research team says it well:
What happens when you fail at market timing?
The impact of being out of the market for just a short period of time can be profound, as shown by this hypothetical investment in the stocks that make up the Russell 3000 Index, a broad US stock market benchmark.
A hypothetical $1,000 investment made in 1997 turns into $10,367 for the 25-year period ending December 31, 2021. Over that same period, if you miss the Russell 3000’s best week, which ended November 28, 2008, the value shrinks to $8,652. Miss the three best months, which ended June 22, 2020, and the total return dwindles to $7,308.
There’s no proven way to time the market—targeting the best days or moving to the sidelines to avoid the worst—so the evidence suggests staying put through good times and bad. Missing only a brief period of strong returns can drastically impact overall performance. We believe that investing for the long term helps ensure that you’re in position to capture what the market has to offer.
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Risks
Investments involve risks. The investment return and principal value of an investment may fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original value. Past performance is not a guarantee of future results. There is no guarantee strategies will be successful.