Okay, nobody ever emails me this exact question.  Instead, they email me or post in a comment or on an internet forum a version of it such as:

With the market so high right now would the best way to do this to be move the money to Vanguard and put it in a money market until the market corrects or comes down some?  I know that is guessing but it seems unlikely to stay this high.


Since interest rates have nowhere to go but up, should I put my safe money in cash or short term bonds instead of the intermediate term bonds I have it in now?


I bought Apple stock at $479/share.  Should I sell?


Several times over the years I have felt very uneasy about the rapid rise of the market. EACH time was followed (within 1-8 months) by a significant drop in market value and my holdings took a nose dive. Each and every one of those times, I was in a ‘managed' account (more like damaged account) where the manager talked me out of pulling my chips off of the table. Had I done so, and held onto cash for the following 9-12 months before reinvesting into the same equity mix, I'd be way ahead of where I currently am, even if I hadn't completely sidestepped a down market.  I'm getting that feeling again….

But the reality is that it is all the same question — should I try to time the market?  It seems so easy to do, and it's easy to calculate how much better off you would be if you could do so.  But before you spend too much time thinking about it, think about what some very smart people have said about it:

Famous, Smart People Who Say You Shouldn't Try To Time The Market

“I do not know of anybody who has done it (market timing) successfully and consistently. I don't even know anybody who knows anybody who has done it successfully and consistently.” — Jack Bogle

“Any investment method that relies on predicting the future is doomed to fail.” — Chandan & Sengupta

“It must be apparent to intelligent investors–if anyone possessed the ability to do so (market time) he would become a billionaire quickly.” –David Babson

“Only liars manage to always be “out” during bad times and “in' during good times. –Bernard Baruch

“There are two kinds of investors, be they large or small: those who don't know where the market is headed, and those who don't know that they don't know.” —William Bernstein, MD

“If I have noticed anything over these 60 years on Wall Street, it is that people do not succeed in forecasting what's going to happen to the stock market.” —Benjamin Graham

Calculating the Enormity of the Task

Remember that when you time the market (whether stocks, bonds, real estate or whatever), you have to do more than just one thing right.

  1. You have to decide what's going to happen.
  2. You have to decide when to get out.
  3. You have to decide when to get back in.

Miss any of these three things and you may have been better off not trying in the first place.

Market-timers like to point out that you don't have to call the very bottom or the very top of the market to add some additional return to your portfolio.  This is true, but there does have to be a big enough difference between when you get out and when you get back in to more than makeup for the taxes and investment expenses associated with both trips.

You should probably also add in a certain expense of your time and effort spent trying to discover when you should get in, as well as out.

A “know-nothing” buy-and-hold investor doesn't have to spend much effort at all on portfolio management.  If her asset allocation gets out of whack a bit, she just rebalances back to the set percentages in her (hopefully written) investment plan.  There is a great deal of liberation in having an investment plan that doesn't require you to predict the future.  Not to mention it keeps expenses and taxes quite low.

Keep a Log of Your Market Predictions

Still not convinced?  Then I suggest you try an experiment, but let's do it with paper money instead of actual money.

market timingStart writing down your predictions.  Do it right now.  Will the stock market finish higher or lower at the end of the year than it is right now?  How about in 90 days?  What will happen with real estate in your neighborhood over the next 5 years?  Where will interest rates be in 90 days, 180 days, or a year from now?  What about the value of a share of Apple in 6 months?  Then keep track.

If you're like most of us, and you're completely honest with yourself, it won't take you long to realize you have no idea what the future holds.  Even if you find out you're right about some things, you'll realize it probably had more to do with luck than any skill or superior knowledge.  Larry Swedroe likes to keep track of the “sure things” that don't come to pass each year.

For example, in his 2012 “Sure Things” edition, he discusses how European stocks actually outperformed US stocks for 2012 and how investors who stayed in long-term bonds funds dramatically outperformed those who went short in order to be ready for the “sure-thing” of rising interest rates.  (It's been a “sure-thing” for 3-4 years as near as I can tell.)

A Few Extremes

Now, all that said, there may be a few times in life where markets are so out of whack that it seems an awfully good bet to try to time the market.  I was quite conscious when buying a house in 2006 that there was a very good chance the value of that house would go down in the future.  I made sure I bought the house at a decent price for the time and also that it wasn't very expensive, in case it's value did drop significantly to protect myself.  Then the price went up for the next two years and then eventually fell to around the same value I bought it at.

In 2010, when I bought my current house, I knew it was a pretty good time.  The value of houses in the neighborhood had dropped 20% or so from the peak, and interest rates were at a low not seen in decades.  Over 2 years later the house appraised for about the same price as it did then and interest rates went even lower. Now 9 years later it has certainly appreciated, but it really taught the lesson that time in the market matters more than timing the market.

Near the end of 2008, as the stock market started rebounding from its October and November lows, I thought, “Well this is probably a good time to buy stocks and the market is now on its way back up.”  Then those stocks lost 27% more of their value between December and March.  In fact, far more than 50% of the time when I've tried to time the market, (thankfully usually just a little,) I've been wrong.

The Bogleheads were polled about projected stock market performance in 2008, and only 2 of 284 Bogleheads were even close.  Less than 1/3 of them (and none of the 13 “experts”) in the poll even got the direction right, much less the magnitude. Even at market extremes, when you would think that timing the market would be easiest, it's still pretty darn hard.

What To Do

Write down an investment plan — 25% in US stocks, 25% in international stocks, 30% in bonds, 10% in real estate, 10% in gold or whatever strikes your fancy as a solid long-term plan.  Keep your costs low.  Rebalance once a year.  Then quit listening to or watching “financial porn.”  I can't time the market and neither can you.  Get used to it.

What do you think? Can the market be successfully timed? Why or why not? Comment below!