Why Timing the Market Fails (And What to Do Instead)

The Temptation

The market is at all-time highs. Someone on Reddit says a crash is coming. Valuations look stretched. Your gut says "wait — things feel frothy."

That instinct feels like intelligence. It feels like pattern recognition, caution, good risk management. And to be fair, you're not wrong that crashes happen. They do. Roughly every few years, something ugly shows up — a pandemic, a financial crisis, a tech bubble popping.

The problem isn't predicting that crashes happen. The problem is predicting when. And the second problem, the one almost nobody talks about, is predicting when the crash is over — because buying into a falling market and catching the bottom are two very different things.

You Have to Be Right Twice

To successfully time the market, you need two correct decisions: when to get out, and when to get back in.

Most people who sell during a downturn don't buy back in at the bottom. They wait for "confirmation" that the recovery is real — by which point the sharpest gains have already happened. The recovery doesn't send a polite email announcing it's started. It just rips upward while everyone is still arguing about whether the worst is over.

Consider COVID. The S&P 500 peaked on February 19, 2020. By March 23, it had dropped roughly 34%. If you sold near the bottom — or even mid-way down — you were now sitting in cash, watching the news cycle get worse. A global pandemic. Lockdowns. Unemployment spikes.

The market bottomed on March 23. Within roughly five months, the S&P 500 had recovered its entire loss. By the one-year anniversary of the bottom, the index was up 76%. The fastest bull market rally since World War II, and most market timers were still in cash waiting for the "second leg down" that never came.

This asymmetry is the killer. Downturns happen over weeks or months. Recoveries often happen in days. If you're sitting in cash during those days, you miss most of the rebound — which is exactly what the next section quantifies.

Bob, the World's Worst Market Timer

There's a famous thought experiment from Ben Carlson at A Wealth of Common Sense that every investor should know.

Meet Bob. Bob is the unluckiest market timer in history. He only invested his money at the absolute worst possible moments — right before every major crash.

Bob saved up and invested his money in the S&P 500 at four points: right before the 1973 oil crisis (48% crash), right before Black Monday in 1987 (34% crash in a single day), right before the dot-com bust in 2000 (49% decline), and right before the 2007 financial crisis (57% decline).

The lesson is stark. Even the worst possible entry points produce excellent long-term results if you simply stay invested. Time in market dominates timing of market. If a Canadian investor did the same thing in a TFSA — buying VEQT at every peak but never selling — the tax-free compounding would amplify the result even further.

The Cost of Missing the Best Days

Here's the data that should make every market timer pause. JP Morgan's Guide to the Markets tracks what happens to a $10,000 investment in the S&P 500 depending on whether you stay fully invested or miss the market's best days.

You cannot selectively avoid the bad days without also missing the good ones. They are a package deal.

The Pros Can't Do It Either

If you still think you might be able to time the market, consider this: the people whose literal full-time job is to beat the market — professional fund managers with teams of analysts, Bloomberg terminals, proprietary research, and decades of experience — can't do it either.

If the world's most sophisticated investors with every conceivable advantage can't reliably time the market, what makes you think reading macro headlines and watching candlestick charts will get you there?

All-Time Highs Aren't Sell Signals

One of the most persistent timing instincts is the feeling that the market is "too high to buy." It hit a new record — surely it's due for a pullback. Better to wait.

This sounds reasonable but collapses under scrutiny. Markets hit new all-time highs frequently — it's the natural state of an upward-trending asset. Since 1950, the S&P 500 has achieved an all-time high on roughly 7% of all trading days. If you refused to buy on any of those days, you'd be sitting in cash for significant stretches while the market continued climbing.

The data on forward returns after all-time highs is clear: investing at new highs has historically produced average 12-month returns of roughly 9-10%, comparable to the market's overall long-term average. All-time highs aren't sell signals. They're a sign that the economy is growing and stocks are being repriced accordingly. Most all-time highs are followed by more all-time highs.

As a VEQT investor, this is especially relevant. VEQT tracks global equities across 13,000+ stocks in 50+ countries. The global economy grows over time. VEQT reaching new highs isn't a warning sign — it's the entire point.

If you've been "waiting for a dip" for more than a few weeks, you're not being strategic — you're market timing with extra steps. As we discuss in our lump sum vs DCA article, the biggest risk isn't bad timing. It's not investing at all.

What Actually Works

The data is overwhelming and unambiguous. Time in market beats timing the market. Every study, every dataset, every professional track record points to the same conclusion.

The strategy that actually works is almost boringly simple:

1. Pick your allocation. VEQT for 100% equities. VGRO if you want some bonds. Don't overthink it.

2. Invest on a regular schedule. Every payday, every month, whenever money becomes available. Set up automatic purchases if your brokerage supports it.

3. Don't look at the price when you buy. Seriously. The price today is irrelevant to your outcome 20 years from now.

4. Don't sell during downturns. This is where the real money is made or lost. Markets recover. They always have. Your job is to be invested when they do.

5. Increase contributions when you can. Raises, bonuses, tax refunds — put them to work.

For Canadians, the order of operations is straightforward: max out your TFSA first, then your RRSP, then a non-registered account. Fill each one with VEQT and go live your life. The If You Invested calculator can show you what this looks like with real historical data.

The Bottom Line

The market timing impulse is natural. It feels like intelligence and caution. The data says it is neither.

You cannot predict crashes. You cannot time the bottom. You cannot avoid the bad days without missing the good ones. Even the professionals — with every resource imaginable — fail at it over 90% of the time. And even the worst market timer in history built a million-dollar portfolio by simply refusing to sell.

The single most reliable wealth-building strategy in history is not complicated: buy a broadly diversified index fund, hold it for decades, and stop trying to be clever. That's exactly what VEQT is for.

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This article is for informational purposes only and is not financial advice. Consider your personal situation and consult a financial advisor if needed.