Should you stay invested or time the stock market? What long-term investors should know
Editorial staff, J.P. Morgan Wealth Management
- Attempting to time the market can cause investors to miss out on significant gains during market recoveries.
- Market timing relies heavily on luck rather than skill, making it an unreliable long-term strategy.
- A disciplined buy-and-hold approach driven by regular contributions and compound growth tends to be more effective for most investors.
Investing in the stock market can be a straightforward and effective way to build wealth over time. When you invest consistently through the inevitable ups and downs, your money has the potential to grow. While many investors stick with this tried-and-true path, it’s natural to wonder about market timing: What if you waited for a "better" moment to jump in?
Usually, people trying to time the market are hoping to beat average returns. But in chasing above-average performance, it’s easy to lose sight of what really works: focusing on the factors you can control – like your time horizon, costs and diversification.
Here’s the approach you might want to consider instead.
Why market timing is so hard: You need to be right twice (and fast)
Identifying the “right” time to jump in and out of the market can be exceedingly difficult. No amount of experience, planning or perceived market insight can ensure an investor identifies the ideal time to buy (at the bottom of the market) or the ideal time to sell (at the top of the market).
Temptation can arise when headlines warn of an imminent market drop or a friend shares a “can’t-miss” stock tip. You might get lucky once or twice with a market-timing strategy, but it can be nearly impossible to replicate your strategy since no two market cycles are the same.
The good news is that there are ways to approach the stock market that don’t involve trying to pinpoint the ideal entry and exit points. Research shows that you can achieve solid returns by simply investing a set amount of money on a regular schedule, through all the market’s peaks and troughs.
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What long-term investors gain by staying invested: Compounding, dividends and time in the market
Some of the highest stock market returns hide amid the most volatile periods. An investor who exits the market just before a drop would have to choose the exact right time to reenter the market to reap those subsequent gains. A buy-and-hold investor, by contrast, would experience the drop but also be there for the recovery without putting in any extra effort or paying additional costs, like taxes on the sale of their holdings or commissions when they buy back in.
By staying invested, you allow compound growth to work its magic. Compound growth is the concept that an investment earns returns on its previous returns. Say you invest $100 at the beginning of the year and by December it becomes $105, thanks to overall market growth. Apply that same 5% return to your new balance of $105, and you end up with $110.25 by the end of year two. Of course, this assumes a consistent return each year and that you don’t add any additional funds. Reinvesting dividends amplifies that effect, injecting more funds into the market on a consistent schedule.
Just look at the last decade: Between 2016 and 2025, the annual total return of the S&P 500 ranged from an 18.11% loss to a 31.49% gain, netting out to a simple annual average rate of return of 15.9%. For investors who stayed in the market during that entire decade, that compounding is what turned years of ups and downs into real, cumulative growth, something an investor sitting on the sidelines may have missed.
Better options than trying to time the market: Keep it steady and stick to a plan
Rather than trying to outsmart the market, long-term investors can find success with a simple buy-and-hold approach paired with dollar-cost averaging. Instead of stressing over finding the "perfect" moment to buy, establish a target asset allocation based on your personal goals, risk tolerance and timeline, then commit to investing a set amount on a regular schedule. By automating this process, you remove emotion from the equation.
To keep your strategy on track, set calendar reminders to rebalance your portfolio once or twice a year. This gives you the chance to realign your investments with your target mix – like a 60/40 stock-to-bond split – if market fluctuations have pushed it off course.
At its core, effective long-term investing relies on clear rules, not fleeting market sentiment. It may help to put your plan in writing, set your contributions on autopilot and think about your objectives before making sudden moves driven by headlines or social media trends. If you feel compelled to make a significant change to your portfolio, pause and ask yourself: Am I reacting out of fear, or has my long-term financial goal genuinely changed?
The bottom line
Trying to time the market can be counterproductive to a winning, long-term investment strategy. It’s unreliable and ultimately requires more luck than skill. A buy-and-hold strategy is more suitable for most investors because it’s based on time-tested rules rather than of-the-moment speculation.
Investing in the market at regular intervals, and remaining invested through every market fluctuation, can help you capture the benefits of market recoveries and compound growth for years to come.
Frequently asked questions about timing the market
You might want to avoid pulling money out of the market during a downturn, with a few exceptions. If the money is earmarked for a goal within the next two years, such as a house purchase, it might be a good idea to move it into a lower-risk investment – such as Treasuries, a money market fund or a high-yield savings account – to preserve your principal.
Dollar-cost averaging is a useful strategy for many investors who aren’t interested in market timing. It involves investing regular amounts at set intervals, such as contributing 10% of your paycheck every two weeks to a 401(k) or similar workplace retirement plan. Think about it like buying stocks on sale: Over time, you can end up paying a lower average price per share. Most importantly, you never have to determine whether it’s a “good” time to invest.
Your portfolio is probably too risky for your time horizon if a market drop – or the threat of one – would cause you to panic and sell your investments. A portfolio aligned with a three- to five-year time horizon, for example, would be weighted more heavily toward low-risk or stable investments, such as bonds and money market funds, rather than equities.
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