Market Timing vs. Buy & Hold Strategies

With the Bulls overtaking the Bears of late in the stock market, many investors are deciding when it’s best to sell their holdings in hopes of making a gain on their investment. Many people believe they can “time the market,” in other words predict the best to time to sell rather than looking at other fundamentals.


PNC Wealth Management offers some pros and cons for both timing the market and buy and hold strategies.

Market timing is an investment strategy in which the investor tries to identify the best times to be in the market and when to get out, in an attempt to reap the greatest return.

Proponents of market timing say that successfully forecasting the ebbs and flows of the market can result in higher returns than other strategies.

Risks of market timing

One of the biggest risks of the market timing strategy is potentially missing the market’s best-performing periods.

An investor who incorrectly times the market may pull money out of the market when it, in fact, enjoys a good or even great performance.  Thus, the investor has incorrectly timed the marked and missed a good performing period

Recognizing the past performance can not guarantee future results, let’s look at the 30 year period from 1979 through 2009. A market timer who invested $1,000, but missed the top 10 months in this 30 year time period would have $8,729, as measured by the S&P 500 Index.  f the market timer missed the top 20 months from 1979 to 2009, his $1,000 investment would be worth only $4,021 after 30 years.

By contrast, an investor who simply left their money untouched in the market would have $24,410 at the end of this 30-year period.  That’s 3 to 6 times more than the unsuccessful market timer.

A better approach, especially for those with long term goals, might be an investment strategy commonly known as “buy and hold.”


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