The Best Time to Invest Was Yesterday: Timing the Market

By Amy Braun-Bostich, MSFP, CFP®, CFS®, APMA®, CLTC®

With continued market volatility, it might make you nervous to take the leap into investment planning. But there’s no time like the present to build your portfolio and take advantage of being in the market. The earlier you get in, the more you can take advantage of buying low, compound interest, and the best days in the market.

Read on to learn more about when to invest!

Market Timing Is Consistently Inconsistent

Timing the market usually involves attempting to “buy low and sell high” by analyzing current market trends for inefficiencies or volatility indicators. This strategy may work sometimes, but it is far from perfect. Not only do you have to guess when to buy in, but you then have to guess when to sell. That means for every gain, you have to be right twice to make timing the market worth it. Unfortunately, market bottoms can only be truly spotted in hindsight, and timing the market is often closer to playing the lottery than it is to an educated guess.

Timing the Market Is Expensive

Timing the market can also be expensive. Depending on your account type, asset class, and where you are executing your trades, you will likely be charged for every purchase and sale you make, and that’s on top of any taxes owed on gains. The more frequently you trade, the higher your transaction costs will be.

If you held the assets for less than a year, your gain will be taxed as ordinary income at your marginal tax rate, which can be as high as 37% for high-income earners. Long-term gains are taxed at a preferential rate. Regardless of your tax rate, your market timing must still be right more often than not just to cover the cost of your guess.

You Will Miss Out on Compound Growth & Market Rebounds

A recent study by Schwab Center for Financial Research found that bad market timing is worse than investing immediately, regardless of the market conditions at the time of investing. This indicates that even in market downturns, or just before a downturn, investors who invest immediately and remain invested will be better off than those who stay on the sidelines or attempt to time the market.

Take a look at Schwab’s graph below, which shows just how much more a fully invested portfolio earns over the course of 19 years. It would earn approximately $14,000 more in growth than a portfolio with bad market timing, and $91,000 more than a portfolio that stays in cash. The only investor who performs better is the one with perfect timing—but since we already know that perfect timing is impossible, investing immediately is the next best strategy.

What’s more, over time that extra $14,000 or $91,000 will have the opportunity to grow even more thanks to compounded interest. Even if the market fluctuates in the short term, the odds are high that a solid investment strategy will grow over time.

Another graph by Hartford Funds and Morningstar shows what happens if you miss the best days in the market, which often closely follow a major downturn and can be just as difficult to predict. An investor who missed the 10 best days in the market between 1992 and 2021 would have earned 54% less than someone who was fully invested during the same time period.

Someone who missed the 30 best market days would have earned a whopping $172,000 (83%) less than their fully invested counterpart. The research is based on a $10,000 initial investment, but these numbers would be much more dramatic if you were dealing with a $100,000 or even a $1,000,000 portfolio.

The time value of money tells us that a dollar today is worth more than a dollar tomorrow, and this is certainly the case when it comes to investing. The longer you are invested, the more likely you are to ride out the day-to-day market fluctuations and experience growth instead.

Don’t Miss Out on Opportunities for Growth

Don’t cheat yourself out of opportunities for growth by prematurely timing the market. Instead, work with a financial advisor that understands the importance of creating a portfolio based on your goals, not the other way around. At Braun-Bostich & Associates, we help you build a vision for yourself, your family, your future, and your legacy. Then we use that vision to drive your investment and financial strategy.

Get started by scheduling a free 30-minute phone consultation or reaching out to us at amy@braun-bostich.com or 724.942.2639. And we also invite you to follow us on social media on Facebook, LinkedIn, and Twitter.

About Amy

Amy Braun-Bostich is founder, CEO, and private wealth advisor at Braun-Bostich & Associates, a fee-based fiduciary wealth management firm located just outside Pittsburgh in Canonsburg, PA. With over 30 years of experience, Amy is dedicated to serving her high-net-worth pre-retiree and retiree clients, including medical and academic professionals, and next-generation accumulators, helping them transform their wealth through customized strategies and top-notch services so they can achieve their goals and receive a new vision of what’s possible. With a goal of adding value to the lives she touches; Amy approaches each client with compassion and transparency and prioritizes building lifelong relationships.

Amy has invested countless hours into growing in her skills and knowledge to bring her clients the best advice possible for their situation. She earned a bachelor’s degree in Psychology from UCLA and also holds a Master of Science in Financial Planning (MSFP). She holds multiple certifications, including CERTIFIED FINANCIAL PLANNER™, Accredited Portfolio Management Advisor℠, Certified Fund Specialist®, and Certification for Long-Term Care. She was named one of Pennsylvania’s Top Women Wealth Advisors in Forbes’ 2023 Best-In-State list. When she’s not helping her clients find clarity and purpose, you can find Amy reading, going on walks, and gardening. She loves to travel and spend time with her family, including her husband, two children, and her dog. To learn more about Amy, connect with her on LinkedIn and Twitter.