Time in the Market vs. Timing the Market

When it comes to investing, one of the biggest debates is whether it’s better to stay invested for the long haul or attempt to time the market by jumping in and out based on predictions. At American Financial Management, we strongly believe in the power of time in the market, rather than trying to time the market.

A recent analysis of the S&P 500 over the past 25 years highlights why this approach matters. The data, illustrated in the chart below, shows the dramatic difference in returns when investors miss just a handful of the best-performing days. If you had invested $100,000 in the S&P 500 Total Return Index from June 30, 1998, to March 21, 2025, your portfolio would have grown to approximately $816,000, reflecting an 8.17% annualized return. However, missing just the 10 best days in the market would have cut that return nearly in half, reducing your portfolio to $374,000. Missing the 50 best days? Your portfolio would have dwindled to just $63,300—a negative annualized return of -1.70%.

The Problem with Market Timing

Many investors attempt to sidestep market downturns by selling when the market appears to be heading lower and buying back in when things look more promising. The issue with this approach is that the market’s best days often come immediately after the worst days. If you’re sitting on the sidelines after a downturn, you’re likely to miss the sharp rebounds that can significantly impact long-term returns.

No one can consistently predict when these best days will occur. Studies have shown that missing even a few of them can have a devastating effect on overall returns, as demonstrated in the chart.

The Benefits of Staying Invested

By staying invested through both market highs and lows, you allow your portfolio to benefit from the long-term upward trajectory of the market. While volatility is an inevitable part of investing, history shows that markets tend to rise over time. Trying to time the perfect entry and exit points is not only stressful but also nearly impossible to execute successfully over multiple cycles.

A Disciplined Investment Approach

At American Financial Management, we help our clients focus on a disciplined, long-term investment strategy that aligns with their financial goals and risk tolerance. Instead of reacting emotionally to short-term market movements, we encourage investors to stay the course and take advantage of the compounding effects that come with long-term investing.

Final Thoughts

The numbers don’t lie—missing just a handful of the best market days can be catastrophic for your investment portfolio. Rather than attempting to time the market, a more reliable strategy is to stay invested, diversify properly, and remain patient. As history has shown, time in the market consistently beats timing the market.

If you're looking for guidance on how to structure your portfolio for long-term success, American Financial Management is here to help. Reach out to us today to learn more about how our investment strategies can help you achieve your financial goals.