Why You Can’t Time the Market… Why Index Funds Win
The market has been on a run for the last three months. Anyone with invested dollars in the stock market has liked the return. But you might hear some say “the market is overinflated” and predict that there is a drop to come. And one might think that “I should pull my money out.” I have thought about it. I have done it in the past. And it never works. Whether it is college funds, retirement funds, or just savings, I am always disappointed.
You can’t time the market. Not consistently. Not over time. And the data proves it.
Consider this: between 2003 and 2022, the S&P 500 delivered an average annual return of 9.8%. However, if an investor missed just the 10 best days in that 20-year span, their return plummeted to 5.6% annually. Miss the 20 best days, and it drops to 2.9%. Timing the market isn’t simply hard—it’s financially devastating if you get it wrong.
And missing those best days is easier than you think. According to a Dalbar study, the average equity investor earned just 6.8% annually from 1992 to 2022, while the S&P 500 averaged 9.65%. Why? Poor market timing decisions—buying high during bullish euphoria and selling low during panic-driven downturns.
Even professional fund managers struggle. SPIVA’s 2022 U.S. Scorecard reports that over 85% of actively managed large-cap funds underperformed the S&P 500 over a 10-year period. These are experts with advanced tools and real-time data, yet most can’t beat the simple, low-cost index fund.
As Warren Buffett wisely said, “The stock market is designed to transfer money from the Active to the Patient.” Investing in index funds isn’t flashy, but it’s effective. By staying consistently invested, you capture the market’s long-term growth, avoid the pitfalls of emotional decision-making, and save on fees. Time in the market, not timing the market, is what builds wealth.
