Quick note: This article presents general, evidence-based investing information for Canadians. It is not personalized financial, investment or tax advice.
Markets rarely feel completely safe.
When prices are rising, you may worry that you are investing near the top. When prices are falling, you may want to wait until the situation becomes clearer. In either case, postponing your decision can feel prudent.
The problem is that clarity usually arrives only after markets have already moved.
This is why time in the market usually beats timing the market. Long-term investors do not need to predict the next correction or recovery. They need a diversified portfolio they can hold through both.
Time in the market versus timing the market
Timing the market means changing when you invest based on a prediction about what markets will do next.
For example, you might:
- Hold cash because you expect prices to fall
- Sell investments because a recession appears likely
- Wait for interest rates or inflation to improve
- Plan to reinvest after markets become less volatile
Time in the market means accepting that short-term movements cannot be predicted consistently. You invest according to your financial plan and remain invested through normal market cycles.
This does not mean buying investments without considering your goals or risk tolerance. It means separating long-term decisions from short-term forecasts.
Successful market timing requires two correct decisions
Selling before a decline is only the first half of a successful market-timing strategy.
You must also decide when to invest again.
Imagine that you sell after markets begin falling. Prices continue declining, which initially makes the decision feel correct. But when markets recover, the news may still be negative. Waiting for reassuring news can mean buying back at a higher price than the one at which you sold.
To outperform by timing the market, you generally need to:
- Reduce your exposure before a meaningful decline.
- Reinvest before a meaningful recovery.
- Repeat the process without allowing fear or overconfidence to interfere.
Getting one prediction right is possible. Repeating the process consistently is much more difficult.
The urge to make those predictions is often influenced by recency bias, overconfidence and loss aversion, which are examined in The Psychology of Investing.
What does the evidence show?
Vanguard studied several strategies that moved from a broad US stock index into cash after market declines of 5%, 10% or 20%.
Between 1989 and 2023, all three timing strategies finished behind the strategy that simply remained invested. Moving to cash reduced some immediate exposure to falling prices, but it also caused the investor to miss parts of subsequent recoveries.
You can see the comparison in Vanguard’s research on index investing.
A more recent example occurred during the sharp market volatility of April 2025. Vanguard compared a balanced investor who stayed invested with investors who moved to cash. By June 24:
- The investor who stayed with the balanced portfolio had a cumulative return of approximately 2%.
- The investor who left the market for one week had a cumulative return of approximately –3%.
- The investor who remained in cash had a cumulative return of approximately –8%.
This was one specific period, so it does not prove that staying invested wins over every possible interval. It demonstrates the practical difficulty: recoveries can begin before investors feel comfortable returning.
Vanguard’s analysis of the 2025 decline and recovery provides the complete example.
Why missing recoveries can be so costly
Strong and weak market days often occur close together during periods of uncertainty.
An investor who moves to cash after a decline may avoid additional losses. However, that investor may also miss an abrupt recovery. Since nobody knows which outcome will come next, moving in and out of the market replaces one form of risk with another.
There is also an emotional cost. After selling, every market movement creates another decision:
- Should I reinvest now?
- Should I wait for another decline?
- Has the recovery already gone too far?
- What if prices fall immediately after I invest?
A long-term strategy reduces the number of predictions you need to make.
Time allows compounding to work
Compounding occurs when your investment returns begin generating returns of their own.
Suppose you invest $10,000 and earn a hypothetical average return of 6% per year:
- After 10 years, it would be worth approximately $17,900.
- After 20 years, it would be worth approximately $32,100.
- After 30 years, it would be worth approximately $57,400.
These figures are hypothetical and ignore fees, taxes and market fluctuations. Actual returns will vary, and losses are possible.
The example nevertheless illustrates an important point: much of the potential growth occurs during the later years. Delaying for long periods or repeatedly moving to cash reduces the time available for compounding.
For a more detailed explanation, read The Magic of Compound Interest: How It Works and Why You Should Start Now.
Should you invest a lump sum immediately?
Investing regularly from each paycheque and gradually investing money that is already available are two different situations.
If you invest $300 every month because that is when you earn the money, you are not intentionally delaying. You are investing as the money becomes available.
If you already have a large amount available but spread it over several months, part of the money remains in cash while you wait.
Vanguard compared immediate lump-sum investing with gradually investing an available lump sum. Its research found that immediate investment outperformed a three-month cost-averaging strategy approximately 68% of the time in the historical periods studied.
That makes sense because stocks and bonds have historically earned more than cash over many periods. Investing earlier gives the money more exposure to that potential return.
However, gradually investing can still be reasonable when investing everything at once would cause so much anxiety that you might abandon the plan. A strategy you can follow may be more useful than a theoretically better strategy you cannot maintain.
The important distinction is between using a short, predetermined schedule and indefinitely waiting for the “perfect” entry point.
Staying invested does not mean ignoring risk
“Time in the market” is useful advice only when the underlying portfolio suits your situation.
Staying fully invested in stocks may be inappropriate when:
- You need the money within the next few years
- You do not have an adequate emergency fund
- Your portfolio is riskier than you can realistically tolerate
- You hold concentrated or speculative investments
- Your goals or financial circumstances have changed
- You are approaching a planned withdrawal
The solution is not to predict the market more accurately. It is to choose an appropriate mix of stocks, bonds and cash before volatility arrives.
Our guide to Stocks vs. Bonds vs. Cash explains how each asset can serve a different purpose.
Rebalancing is also different from market timing. Rebalancing returns your portfolio to its planned asset allocation. Market timing changes the plan based on a forecast.
How Canadian investors can put this into practice
1. Protect short-term needs first
Keep money for emergencies and near-term expenses in an appropriate savings vehicle rather than relying on stock-market investments.
This helps prevent an unexpected expense from forcing you to sell during a decline.
2. Choose the right account
Canadians can hold investments inside accounts such as a TFSA or RRSP.
Investment income and capital gains earned in a TFSA are generally tax-free, including when withdrawn. RRSP contributions may generate a tax deduction, while withdrawals are generally taxable.
The best choice depends on your income, goals and expected future tax rate. Our TFSA vs. RRSP comparison explains the main differences.
3. Choose a portfolio you can hold
A portfolio should reflect:
- Your financial goals
- Your investment horizon
- Your ability to absorb losses
- Your emotional response to volatility
- Your need for liquidity
A diversified portfolio will still decline at times. The goal is to choose a level of risk that makes staying invested realistic.
For many investors, a broadly diversified all-in-one ETF can simplify this process by maintaining a predetermined mix of stocks and bonds.
4. Automate new contributions
Automatic transfers reduce the temptation to make every contribution dependent on current market news.
You can arrange for money to move from your bank account to your investment account after each paycheque. If your brokerage supports recurring ETF purchases, you may also be able to automate the investment itself.
5. Review your plan instead of reacting to headlines
A planned annual review is usually more useful than checking your portfolio every day.
During that review, consider whether:
- Your goals have changed
- Your time horizon has shortened
- Your financial position has changed
- Your asset allocation still matches your risk capacity
- Your portfolio needs rebalancing
Market headlines alone are not evidence that your long-term plan has stopped working.
What if the market feels expensive?
Markets can appear expensive and continue rising. They can also appear reasonably valued and decline.
Valuation affects expected long-term returns, but it does not provide a reliable short-term entry signal. Waiting for lower prices can therefore create its own risk: the market may rise while your money remains in cash.
If investing everything immediately feels uncomfortable, you could use a short written schedule—for example, investing equal amounts over three months. Establish the schedule in advance and follow it regardless of the headlines.
That turns an emotional waiting period into a defined process.
Does market timing ever work?
Yes, it can work over a particular period.
Someone who sells before a decline and reinvests near the bottom will outperform an investor who remained invested. The difficulty is identifying those moments in advance and repeating the process after costs, taxes and emotional decisions.
The claim that time in the market beats timing the market is therefore not a mathematical law. It is a practical conclusion for ordinary long-term investors who cannot reliably predict short-term market movements.
The takeaway
Time in the market does not guarantee a profit, eliminate volatility or make every investment suitable.
It provides a more dependable process:
- Build an emergency fund
- Select an appropriate account
- Choose a diversified portfolio that matches your risk
- Invest when money becomes available
- Automate contributions where possible
- Rebalance according to a plan
- Change the strategy when your life changes, rather than when the headlines do
You do not need to identify the perfect day to invest. You need a sound plan that gives your money enough time to work.
This article is for informational and educational purposes only. It is not financial, investment, tax or legal advice. Investing involves risk, including the possible loss of principal. Past performance does not guarantee future results.