Quick note before we start: This article shares general, evidence-based ideas about long-term investing strategies. It is not personalized financial or tax advice for your specific situation.
Have you ever thought about investing a chunk of money but decided to wait? You tell yourself, “The market feels too high right now. I’ll wait for a crash, buy low, and then I’ll look like a genius.”
If so, you are trying to Time the Market.
It’s an incredibly common feeling, fueled by non-stop financial news and market excitement. We all want to buy at the bottom and sell at the top. But here’s the honest, evidence-based truth: that strategy is the single biggest threat to your long-term wealth.
The real winning strategy is to focus on Time in the Market. Let’s break down why consistency, patience, and staying invested are the foundation of all successful investing.
The Big Lie of Timing the Market
Timing the market is the attempt to predict when the stock market will go up or down, so you can buy or sell stocks right before the shift. It sounds simple, but it is effectively impossible.
Why Timing Fails
- The Experts Fail: Studies consistently show that most professional fund managers fail to beat a simple index fund over the long term. If highly paid experts with PhDs and unlimited data can’t do it consistently, how can an individual investor?
- The Market is Unpredictable: The market is not logical in the short term. Wars, political surprises, sudden technological shifts, or even just mass psychology can drive prices. No single metric can predict these events.
- You Have to Be Right Twice: To successfully time the market, you need to make two perfect decisions: 1) When to sell and get out, and 2) When to buy back in at the bottom. Getting one right is hard; getting both right is almost impossible. Most people who sell due to fear wait far too long to buy back, missing the recovery.
The Staggering Cost of Missing the Best Days
This is the data point that should put the “timing” debate to rest. The market’s biggest up days are not spread out evenly. They tend to happen immediately after the biggest down days. If you’re out of the market during a panic, you’re almost guaranteed to miss the recovery.
Missing Just a Few Days Wrecks Returns
Timing the Market Is Impossible
A major study looking at US markets showed that if an investor missed only the 10 best performance days over a 20-year period, their total returns would be cut in half. Miss the 20 best days, and your returns drop by 70%. Time in the Market keeps you exposed to those essential growth days.
– Market timing and missing the worst performance days
You don’t need to capture every single day of growth. You just need to be invested for the entire ride.
Why Time in the Market Works Best in a TFSA or RRSP
For Canadians, the power of Time in the Market is amplified within our registered accounts: the TFSA (CELI) and the RRSP (REER).
These accounts don’t just let your investments grow; they let them grow tax-free (TFSA) or tax-deferred (RRSP). The longer the time horizon, the more powerful this tax advantage becomes.
- Compounding is Your Best Friend: The main reason Time in the Market works is the miracle of compounding. Compounding is when your investment returns start generating returns themselves. The effect is small in the first few years but accelerates dramatically over decades.
- Canadian Example: Imagine you invest $5,000 CAD in an index fund that averages an 8% annual return.
- After 10 years, it might be worth $10,795.
- After 30 years, it is worth $50,313.
- The later years generated dramatically more money than the early ones. You need maximum time for this magic to happen.
If you are constantly pulling your money out or sitting on the sidelines trying to wait for a dip, you are cutting short the compounding process. You are trading a proven strategy (compounding) for a futile attempt (predicting the future).
How to Stop Timing and Start Living
The best investing strategy is also the most boring: automation. It’s called dollar-cost averaging, and it’s the antidote to market-timing anxiety.
- Set Your Budget and Goal: Decide how much you can afford to invest each month without fail. Even $100 CAD a month is a powerful start.
- Choose a Simple Index ETF: Don’t try to pick individual stocks. Choose a low-cost, broadly diversified ETF (Exchange Traded Fund) that tracks the market, like the S&P 500 or the whole Canadian and global markets. (What Are Index Funds and ETFs, and Why Should Canadians Invest in Them?)
- Automate Your Contributions: Set up an automatic transfer from your bank account to your investment account on the same day every month.
- Buy, Hold, and Ignore the Noise: When the money hits your account, use it to buy your chosen ETF. This means you buy a mix of high and low prices over time. Then, close the app. Do not check the news. Do not panic during a market drop. The goal is simple: stay invested for decades.
This simple, disciplined process ensures you are always participating in the market and removes the emotional component of investing. This is the core principle championed by experts like Morgan Housel, who emphasizes that success in investing is less about brainpower and more about behaviour.
The Takeaway
There is no secret shortcut to building wealth. The evidence is overwhelming: Time in the Market Beats Timing the Market.
Be consistent. Be patient. Use your TFSA and RRSP to let compounding and tax advantages work for you over the long haul. Your next step should be to set up that automated investment today.
This article is for informational and educational purposes only and is not intended as financial, investment, tax, or legal advice. It should not be relied upon as a substitute for professional consultation. The author is not a licensed financial advisor. All investing carries risk, and past performance is not a guarantee of future results. You should consult with a qualified financial professional before making any investment decisions.
