Why Trying to Time the Market Is Risky—Especially With Your Cash

One of the most common conversations we have with clients involves when to invest. Maybe you've recently come into some cash (a bonus, inheritance, or the proceeds from a home sale) and you're wondering if now is the "right time" to put it into the market. With this year’s market volatility and the news headlines, it can feel tempting to wait for the "perfect moment." However, trying to time the market is one of the biggest mistakes investors can make and can end up permanently hurting your portfolio rather than protecting it. Here’s a few reasons why:

1. Market Timing Is Nearly Impossible - The idea of buying low and selling high sounds simple in concept. Identifying when the market has hit a bottom or a peak is anything but simple. Even professional investors with access to cutting-edge data, analytics, and decades of experience consistently fail to do it reliably. Most reversals happen suddenly and often when sentiment is at its worst or overly optimistic.

2. Missing Just a Few Days Can Cost You Big - A study from J.P. Morgan’s “2024 Guide to Retirement” showed that if you missed just the 10 best days in the market over a 20-year period, your returns would be cut in half. In fact, many of those best days came right after some of the worst ones. If you're sitting on the sidelines waiting for the volatility to pass, you could miss the rebound—and with it, a significant chunk of long-term growth.

3. Cash on the Sidelines Loses Value Over Time - While you're waiting for the perfect entry point, your cash is exposed to another silent threat—That is, inflation. Even with interest rates offering a modest return on savings or money market accounts, those returns can lag behind the rising cost of living.

4. Consistency Beats Timing - Instead of trying to guess the market, employing a disciplined, consistent approach is more effective. Dollar-cost averaging (investing fixed amounts of cash at regular intervals) helps smooth out the ride. Over time, this removes emotion and guesswork from the process.

5. Time In the Market Beats Timing the Market - The greatest ally investors have is time—not timing. The longer your money is invested, the more it can benefit from compound growth. It's not about catching every high or avoiding every dip. Part of obtaining the rates of return we’re seeking from equities, means withstanding the periods of short-term volatility.

The Bottom Line

Holding cash and waiting for the “right moment” might feel prudent, but in reality, it often leads to missed opportunities and diminished long-term returns. Markets will always have ups and downs, but your financial plan should be built to weather that through diversification, time-tested strategies, and a commitment to staying the course.