Sticking to a sensible strategy potentially beats market timing. When the markets drop, sometimes investors panic, selling at or near a market bottom. Then they wait too long to get back in once the market recovers. More often than not, these investors make “market timing” decisions based more on emotion than logic.
Much as we’d like to, no one can predict the future, including the direction of the stock market. It makes little sense to base your investment plans and decisions on unknowns, over which you have no control.</div><div>Market timing usually fails as an investment strategy because it involves two decisions: knowing when to get out, and knowing when to get back in. Getting both decisions right is very tough, even for professional investors. Selling at the wrong time locks in actual losses, while staying invested only incurs losses on paper — they don’t really affect you until you sell.
Instead, you should establish a solid, long-term investment plan and stick to it. Contributing to your retirement plan each month imposes a certain discipline that has the potential to make you more money over time.1 This is because your regular investment buys fewer shares of a fund when prices are high, but more shares when prices are low. The result? Potentially, more money to spend in retirement.
1.There is no guarantee that dollar-cost averaging will generate a profit or protect against investment losses. Investors need to carefully consider whether they can continue to invest in an extended down market.