Forget Timing the Market: Do This With Your Retirement Accounts Instead
Image source: Getty Images Stocks go up, and stocks go down. The S&P 500 index (which is what most Americans are talking about when they say "the stock market") can gain or lose a lot of value in a single year, month, or day. But if you're trying to decide if now is the best time to buy stocks, you might be falling into a trap that can cost you money.Alert: highest cash back card we've seen now has 0% intro APR into 2026 This credit card is not just good – it's so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee! Click here to read our full review for free and apply in just 2 minutes. A big stock market downturn or a big run-up in stock prices can make some investors nervous. People might be tempted to sell stocks, stop buying stocks, or pause their retirement account contributions in hopes of something that's known as "timing the market."Let's look at what timing the market means, why you shouldn't use this risky investment strategy -- and what you should do with your money instead.Why people fall into the trap of trying to time the marketIf you're asking, "Is now a good time to buy stocks?" It's often the wrong question. This type of question means investors are trying to make a risky bet based on what they think will happen to stock prices in the near future.Two powerful feelings tend to drive people's desire to time the market:Greed: Stocks recently went down, and so stocks feel "cheap." People think, "Now is a good time to buy more stocks."Fear: Stocks recently went up, and so stocks feel "expensive." People think, "Prices probably won't keep going up, so I should sell stocks, or stop buying stocks." (Or: stocks recently went down, so people worry that stocks will crash -- and they panic-sell their stocks.)Here's the problem: no one knows what's going to happen next in the stock market. Sometimes, in a bear market, stocks go down… and keep going down for a long time. Sometimes, in a bull market, stocks go up… and just keep surging upwards. Trying to time the market is usually a mistake, because of the unpredictability of the stock market.Stock prices are determined by a wide range of complex economic factors and business decisions beyond any individual's control. The market is constantly in motion based on millions of decisions by people controlling trillions of dollars. Even Wall Street professionals cannot reliably time the market.One way to avoid the stress of trying to time the market is to use a robo-advisor platform. Robo-advisors make it easier for you to automatically invest and grow your money for the future, based on your goals, age, and how much investment risk you're comfortable taking.Click here to learn more about our curated picks for the best robo-advisors -- offered by top-rated brokerages with a wide range of investment choices and low fees.Timing the market: Lock in losses, miss out on gainsTiming the stock market is not some clever parlor game for investment gurus; it causes real people to lose real money. If you're trying to time the market, you run the risk of:Locking in investment losses by selling stocks at the wrong time.Missing out on investment gains by being on the sidelines right before the stock market goes up even higher.Sometimes stocks veer wildly back and forth, within one month or even one week. As of Nov. 24, 2024, the S&P 500 index is up 25.86% year to date. If you'd put $1,000 into an S&P 500 index ETF on Jan. 1, 2024, it would be worth about $1,258 today. But to get those gains, you have to hold on to your investments. Timing the market can cause people to overreact to every little short-term up or down.For example, the S&P 500 saw some big downturns in 2024:July 31-Aug. 5: -6.08%April 11-April 19: -4.46%Aug. 30-Sept. 6: -4.25%If you panicked and sold stocks right after any of those drawdowns, you would have lost money for the rest of the year.On any given day, even when the S&P 500 index reaches all-time highs, no one really knows if stocks are truly cheap or expensive. Your personal fear or greed won't necessarily be correct or get rewarded. Even if you believe that any one company's stock, or the entire S&P 500 index of America's 500 largest publicly traded companies, is "cheap" or "overpriced" right now, the market will decide.What to do instead of timing the marketTry not to worry about the day-to-day fluctuations of the stock market. Just stick with your long-term investment plan. Financial advisor Ben Carlson recently published a chart showing that, based on the past 31 years of S&P 500 index returns, the index almost always goes up in the long run.If you have a long-term time horizon, such as investing for a retirement that's decades away, there is no such thing as a "bad time" to buy stocks. Instead of asking, "Is today the right time to buy stocks?" Ask yourself: "How many years do I have for this money to grow?"Don't try to time the market by waiti
Image source: Getty Images
Stocks go up, and stocks go down. The S&P 500 index (which is what most Americans are talking about when they say "the stock market") can gain or lose a lot of value in a single year, month, or day. But if you're trying to decide if now is the best time to buy stocks, you might be falling into a trap that can cost you money.
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A big stock market downturn or a big run-up in stock prices can make some investors nervous. People might be tempted to sell stocks, stop buying stocks, or pause their retirement account contributions in hopes of something that's known as "timing the market."
Let's look at what timing the market means, why you shouldn't use this risky investment strategy -- and what you should do with your money instead.
Why people fall into the trap of trying to time the market
If you're asking, "Is now a good time to buy stocks?" It's often the wrong question. This type of question means investors are trying to make a risky bet based on what they think will happen to stock prices in the near future.
Two powerful feelings tend to drive people's desire to time the market:
- Greed: Stocks recently went down, and so stocks feel "cheap." People think, "Now is a good time to buy more stocks."
- Fear: Stocks recently went up, and so stocks feel "expensive." People think, "Prices probably won't keep going up, so I should sell stocks, or stop buying stocks." (Or: stocks recently went down, so people worry that stocks will crash -- and they panic-sell their stocks.)
Here's the problem: no one knows what's going to happen next in the stock market. Sometimes, in a bear market, stocks go down… and keep going down for a long time. Sometimes, in a bull market, stocks go up… and just keep surging upwards. Trying to time the market is usually a mistake, because of the unpredictability of the stock market.
Stock prices are determined by a wide range of complex economic factors and business decisions beyond any individual's control. The market is constantly in motion based on millions of decisions by people controlling trillions of dollars. Even Wall Street professionals cannot reliably time the market.
One way to avoid the stress of trying to time the market is to use a robo-advisor platform. Robo-advisors make it easier for you to automatically invest and grow your money for the future, based on your goals, age, and how much investment risk you're comfortable taking.
Click here to learn more about our curated picks for the best robo-advisors -- offered by top-rated brokerages with a wide range of investment choices and low fees.
Timing the market: Lock in losses, miss out on gains
Timing the stock market is not some clever parlor game for investment gurus; it causes real people to lose real money. If you're trying to time the market, you run the risk of:
- Locking in investment losses by selling stocks at the wrong time.
- Missing out on investment gains by being on the sidelines right before the stock market goes up even higher.
Sometimes stocks veer wildly back and forth, within one month or even one week. As of Nov. 24, 2024, the S&P 500 index is up 25.86% year to date. If you'd put $1,000 into an S&P 500 index ETF on Jan. 1, 2024, it would be worth about $1,258 today. But to get those gains, you have to hold on to your investments. Timing the market can cause people to overreact to every little short-term up or down.
For example, the S&P 500 saw some big downturns in 2024:
- July 31-Aug. 5: -6.08%
- April 11-April 19: -4.46%
- Aug. 30-Sept. 6: -4.25%
If you panicked and sold stocks right after any of those drawdowns, you would have lost money for the rest of the year.
On any given day, even when the S&P 500 index reaches all-time highs, no one really knows if stocks are truly cheap or expensive. Your personal fear or greed won't necessarily be correct or get rewarded. Even if you believe that any one company's stock, or the entire S&P 500 index of America's 500 largest publicly traded companies, is "cheap" or "overpriced" right now, the market will decide.
What to do instead of timing the market
Try not to worry about the day-to-day fluctuations of the stock market. Just stick with your long-term investment plan. Financial advisor Ben Carlson recently published a chart showing that, based on the past 31 years of S&P 500 index returns, the index almost always goes up in the long run.
If you have a long-term time horizon, such as investing for a retirement that's decades away, there is no such thing as a "bad time" to buy stocks. Instead of asking, "Is today the right time to buy stocks?" Ask yourself: "How many years do I have for this money to grow?"
Don't try to time the market by waiting until stocks go down to reach "the right price." Instead, keep using your 401(k), IRA, or other investment accounts to buy stocks each payday.
Bottom line
If you're investing for retirement, hopefully, you still have many years of earning, saving, and investment growth ahead of you. If you're a long-term investor, buying stocks with S&P 500 index ETFs is often the right choice, even if the stock market just recently went up or down.
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This credit card is not just good – it's so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!
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