Time in the Market

“Time in the market beats timing the market” is one of the most repeated phrases in investing, and the data backs it up. The idea is straightforward: staying invested over a long period tends to produce better results than trying to jump in and out at the perfect moments.

Why timing is so hard

To successfully time the market, you need to be right twice. You need to sell before a drop, and buy back in before the recovery. Miss either side and you end up worse off than if you’d just stayed put.

Research has shown that if you missed just the 10 best trading days in the S&P 500 over a 20-year stretch, your returns would be cut roughly in half. Many of those best days happened right after the worst days, which means the people who sold during a crash were the most likely to miss the rebound.

What this looks like in practice

If you invested $10,000 in a broad Canadian index fund 20 years ago and left it alone, you’d have significantly more than someone who moved to cash during downturns and tried to get back in later. Not because markets only go up, but because staying invested captures the full cycle of recovery and growth.

Example

If you invested $10,000 in a broad Canadian index fund at the start of 2004 and left it alone for 20 years, your investment would have grown to roughly $38,000 by the end of 2023. If you tried to time the market and missed just the 10 best trading days during that stretch, you’d have closer to $19,000. That’s half the return, gone because of 10 days out of roughly 5,000.

This doesn’t mean you should ignore your portfolio or never make changes. It means that for most people, the biggest risk isn’t a bad day in the market. It’s not being invested at all, or pulling out at the wrong time. Our time in the market guide looks at the numbers behind this idea.