Timing the Market – A Smart Move?

Timing the MarketThere’s been something that’s been eating at me for a couple of months now.  The stock market seems too bloated right now and I’m thinking about moving my money out of it.

No, no – I’m not trying to be the guy timing the market.  I just think I should move the money in my 401(k) to cash for a little bit and when the market crashes, I’ll be able to buy again at much lower prices.  My 401(k) would be worth so much money after that!

Oh, wait… I guess that’s exactly what timing the market is.

Timing the Market

If you’re familiar with that expression, you probably also know that market timing is a gamble that very few people ever win at.  Basically, you’re trying to beat the stock market… tough battle.  And it would be especially tough for me to beat since I don’t really follow it daily.  I also don’t know enough about trends or a lot of the economics that help swing it in different directions.

But could you imagine if I did sell now and I was right?!  My 401(k) is a very sizable portion of our net worth.  That would put me on the map for retirement that much sooner, which is something I could really use right now!

A buddy of mine and I have this discussion all the time.  He keeps suggesting that he wants to do this and I keep saying that it’s not a good idea.  The problem is that I actually want to do this too – it just seems like an easy solution… sell high and buy low.  Easy enough, right?

However, the big unknown is what gets people who attempt this into trouble.  The issue is that you really don’t know if you’re selling high.  Maybe the market will continue to grow for another couple of years before it goes down.  Think of the compounding growth you would then miss out on during that time.

The Mad Fientist put out a great podcast recently which was a Q&A at Camp Mustache.  The guests were Mr. Money Mustache, Paula Pant from Afford Anything, and Doug Nordman from The Military Guide.  During the Q&A, someone asked the panel of guests about timing the market.  Like I said, this is something that’s been on mind for a while so I really perked up.

There were some good replies, but what I really liked was the response from the Mad Fientist.  Here was something he said about the topic that stuck with me…

So, it’s something I’m trying to work on too.  But I also want to point out that we could’ve had this conversation in 2012 and been like, “Wow!  This boom market is crazy!”  And if you had stopped investing then, you would’ve been sorry.

You can never tell when the boom market is going to stop.

Timing the MarketHe’s right – and I bet there were a lot of people who did sell at that time and have looked back since then realizing they made a pretty big mistake.

And guess what?  That’s only half the battle!  You would also need to know when the market is at the bottom.  Maybe you assume that it can’t go any lower and buy back in and then it continues to tumble even more for another year after that.

It’s a pretty good mind conflict.  The smart move is to just let it ride in index funds and forget about it.  Keep contributing and don’t let it phase you. But the psychological aspect likes to eat at me anyway.

Is it possible maybe this one time I might be smarter than the stock market?

Probably not.

But it’s still something that drives me bonkers.  Coincidentally, in that same podcast, Paula had a thought that could be helpful to people like me…

The way that I’ve dealt with this is instead of thinking about, “I’m going to invest less when I feel like the market is high,” flip your mindset into “When I feel like the market is low, I’m going to invest even more.”

So, whatever amount you’re currently investing monthly, just keep doing that.  And then, when you see a dip, be like, “Okay, sweet!  What is something I would’ve spent some money on, just something ridiculous, but instead, I’m going to take that and invest that now at the dip.”

I like that idea and I actually already try to do that when I can.  Although my 401(k) continues to buy index funds, my Roth IRA doesn’t automatically do that.  So I usually just keep adding a little money into it every other week and then when the market dips just a little bit, I buy.  It makes me feel like I’m getting a deal… we’ll call that timing the market on the smallest scale!

So, all in all, I’ve decided for the time being to begrudgingly stick to the plan, leave my money in the market, and keep investing… but just know that I hate it! 🙂

Has the idea of timing the market ever jumped into your head? If so, have you acted on it?

Thanks for reading!!

— Jim

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10 thoughts on “Timing the Market – A Smart Move?”

  1. I do a similar strategy with my Roth IRA and am hoping for a dip soon to get the cash pile in (sooner than later I am just going to pull the trigger)

    I listened to the same podcast recently and thought they dropped some really great advice – another good line about market timing is “you have to be right twice” which is a lot harder said than done

    Keep fighting the urge!

    1. Haha, thanks AE! It was definitely a good podcast for sure. I’m glad to hear I’m not the only one who waits for a dip before pulling the trigger in the Roth! I’m with you that at some point if the market doesn’t drop at all you just need to buy anyway without wasting too much time.

      — Jim

  2. I go through the same struggles myself, Jim, but I just have to remind myself that my strategy is based on being a long term investor and it’ll work out no matter what so no sense in messing with a good thing.

    I know some folks who did pull money or in 2012 and tried to convince be to do the same. So glad I stick with my guns!

    Also, I like Paula’s answer too. In those down market I pull our all the stops and try to throw as much as I can into the market.

  3. Well said Jim! In my experience, nobody can reliably predict the future. Unfortunately the anxiety from uncomfortable valuations has a lot of people on edge.

    I recently did a writeup over on my blog about dealing with investing anxiety ( http://www.mrtakoescapes.com/2016/09/30/dealing-investment-anxiety/ ). It sounds like you’re having a bit of it yourself! 🙂

    I think you’re right to stick with your plan, but if there’s anything I do know it’s that the world never stays the same. Be prepared!

    I’ve got my ‘safety-net’ cash in-place and ready to buy when valuations look good. But for now, if my investments slow down a little, and some extra cash piles up, that’s OK too!

  4. Hi Jim,

    This is my first visit to your blog. You don’t need to time the market – but here is what you can do. It is called portfolio re-balancing – something a robo-advisor would do for you automatically.

    In my asset allocation, I have 60% stocks ETFs and 40% bonds ETFs. Whenever the drift is greater than 3%, I re-balance. For example, if stocks went up to 64% and bonds went down to 36%, then I would sell 4% of my stocks and buy into bonds to bring it back to 60 / 40 allocation.

    I do this check once a quarter. This way you can constantly take profits.


    1. Hi Michael – thanks for stopping by! That’s definitely another way to help avoid timing the market, but I wanted all in or nothing at all! 🙂

      I used to have my 401(k) set to automatically re-balance a few times a year, but about a year ago, I changed my account to be one fund – a Vanguard retirement fund. That now will auto-magically do some re-balancing on its own and has an expense ratio of just 0.18% as an added bonus!

      I do think your point on re-balancing though is something a lot of people should be doing to keep their portfolio in check on a regular basis.

      — Jim

  5. Good right up. I read somewhere once that it’s kind of ironic that “timing the market” is just foolish if we are talking “short term”. But ultimately ALL investing is market timing just on a longer timescale. The assumption being if you buy NOW that the market will be higher in 15 or 20 or 35 years. So long term we’re timing the market.

    Another approach which I think Warren Buffet sort of aligns with is to buy based on value. I think you’re probably right about the market not offering a lot of value currently. I think it’s because there simply aren’t a lot of good places to put money now. Internet rates are likely to rise in the short term which makes bonds not a great place in the short term. Real estate could still be a bit of a bubble. Stock market valuation is not great because alternatives aren’t that attractive and I think the popularity of index investing, the FIRE movement, and general market optimism have put us in a bit of a bubble.

    1. Definitely a tough spot to figure out what to do with your money right now. Hopefully, with some of the volatility we’re seeing lately, the market might provide some good deals soon. But like you said, if it’s long-term we’re looking at and we zoom out on the charts, then we’re most likely going to be getting some decent value now regardless.

      — Jim

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