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Trying to dodge a downturn can hurt a long-term investor when the sale is followed by a late or missed return to the market. Market timing requires getting two decisions right—when to sell and when to buy back—and strong market days can occur while an investor is waiting in cash. Historical missed-day examples show how that absence affected particular hypothetical investments, but they are not forecasts or proof that staying invested suits every person.
What market timing means—and why it is difficult
Market timing is moving money in or out of the market, or between investments, to benefit from predicted short-term price changes. FINRA notes that this can raise returns in theory, but frequent trades based on predictions carry risk. FINRA’s explanation of market timing describes the strategy and its risks.
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The challenge is not just deciding when to leave. An investor also has to decide when to return. Fidelity points out that even an investor who correctly identifies a market top may not know when to buy back in. If prices recover before that second decision, the investor can miss some of the gains they hoped to protect.
What “missing the best days” examples show
Historical comparisons often calculate what a hypothetical investment would have returned if it stayed invested, then compare it with a version that missed selected top-performing days. The results illustrate how much a small number of unusually strong days can influence a past outcome. They do not show that an investor could have identified those days in advance, that every timing strategy loses, or that the same investor would not also have avoided some down days.
#1 Best Overall
| Source and period | Hypothetical comparison | What the figure means |
|---|---|---|
| Vanguard Investment Advisory Research Center; 37-year period, using FactSet data | 11.1% annualized with all days invested; 8.9% missing the 10 best days; 7.3% missing the 20 best days; 6.0% missing the 30 best days | Historical annualized returns under the source’s calculation, not a forecast for future investors. Vanguard’s explanation. |
| Vanguard; 2000–2019 illustration | A hypothetical $100,000 investment that missed the 25 best market days ended with $229,000 less than the comparison that remained invested | A comparison for that period and illustration, not a general penalty for selling. Vanguard’s report. |
| Fidelity; 1988–2025 hypothetical S&P 500 example | A $10,000 starting investment grew to $616,013 if kept invested versus $44,626 after missing the best 50 days | A separate hypothetical with a different period and missed-day count; do not compare it as if it were the same calculation as Vanguard’s. Fidelity’s example. |
These are provider-produced U.S. market illustrations with different periods and assumptions. Actual results vary with the investment, fees, taxes, and timing decisions. The examples should not be read as evidence that remaining invested guarantees a gain or is right for every asset allocation.
Why reacting to volatility can backfire
- The exit and re-entry are linked. Selling may reduce exposure to a decline, but waiting for confidence or clearer headlines before buying again can leave an investor out during a recovery.
- The strongest days are known only afterward. A missed-days chart selects the best days retrospectively; it does not provide a usable signal for avoiding weak days without missing strong ones.
- Cash has trade-offs. Moving money out of investments can reduce exposure to some losses while also giving up market advances during the period out of the market.
- Frequent predictions create more chances to be wrong. A timing approach can involve repeated decisions about when to switch, with each decision adding uncertainty.
Vanguard reported that fewer than 1% of the more than five million Vanguard retail households it examined abandoned equities completely during the volatility described in its 2020 report. That finding is specific to those Vanguard households and that period; it is not a statistic about investors generally. Vanguard’s report.
Rank #2
Scheduled investing is not the same as market timing
Investing a fixed amount on a schedule—often called dollar-cost averaging—sets a routine for purchases rather than trying to forecast an exit and a re-entry. FINRA says periodic investing may reduce short-term downside exposure and regret, but it can lag investing a lump sum immediately when markets rise and some money remains in cash. FINRA’s overview of dollar-cost averaging explains these trade-offs.
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Rather than letting a headline dictate a portfolio change, compare the proposed trade with the plan that led to the investment. Vanguard describes allocation decisions in relation to goals, time horizon, and risk tolerance; its investing principles are available in Vanguard’s Principles for Investing Success. FINRA similarly cautions investors not to let short-term emotions disrupt long-term financial objectives.
- Goal: Is the money intended for a long-term objective, or will it be needed soon?
- Time horizon: Would the planned investment mix still make sense given when the money is needed?
- Liquidity needs: Is there a near-term expense that calls for accessible cash, independent of a market forecast?
- Risk tolerance: Does the current allocation expose the investor to more volatility or potential loss than they can reasonably accept?
If the allocation no longer fits those answers, that is a reason to review the plan rather than to assume a short-term market prediction will be correct. Scheduled contributions or help from an investment professional may be options to consider when developing a strategy for individual goals; neither is a guarantee against loss.
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