When Is the Best Time to Invest in the Stock Market?

The media would have you think there are dozens of reasons to buy into or sell out of the market, but what the hard data shows is that most of the time, you should stick to a long-term investment strategy.

illustrative chart with arrow hitting target

There’s a saying we at Betterment love: Stock market pundits have successfully predicted 20 out of the past two market crashes. If you listen to the media, they’d have you think that there are dozens of potential reasons to buy into or sell out of the market—to tweak your portfolio—but, what the hard data shows is that most of the time, you should just stick to a solid strategy of investing in a globally diversified portfolio with tax optimization for the long term.

Whether you’re a first-time investor getting started and have no clue where to begin, or an experienced investor with a nagging feeling that you could be doing better, the question “Is now the right time to invest?” (or its close cousin, “When should I withdraw?”) often comes up.

At Betterment, our customer support team gets these types of questions a lot. People are constantly looking for advice on when to get into the market and when to get out. But the truth is, you don’t have to be a financial advisor to know that nobody can predict the best time to invest. If you message our team of licensed experts, they’d likely tell you that as advisors, they can’t predict the market any better than you can.

Whether we analyze the market by asset class, by industry, or by recent events, the truth of the matter is that there is no best time to invest or stay out of the market; and those who try to time their investing strategy usually underperform a long-term investment approach.

One of our senior customer support specialists Joe Wang says that he hears a wide range of reasons for why customers want to stop or start their investing strategy. Here are a few examples:

  • “The market has gone up recently, so it must be due for a correction.”
  • “The market is overvalued/at an all time high, so it isn’t safe to buy now.”
  • “I’m expecting interest rates to go up/down, so I’m adjusting my allocation in increase stocks.”
  • “Bonds are a bad bet right now.”
  • “I’m anticipating a stock market crash in the near future.”

As humans, our natural tendency is to worry about things that will harm us, and we often feel driven to do something about it. When it comes to investing, this often unconscious motivation can lead you to change your investment allocation to avoid an unpleasant scenario. But unfortunately, making allocation changes—as good as it feels in the moment—actually reduces returns, on average.

Even “Experts” Have Difficulty with Their Emotions

Human tendencies don’t disappear when you become a professional either. One member of our licensed experts team shared a past advisory experience working with portfolio managers on their personal investments:

Even portfolio managers that are data-driven with their clients’ money tend to act differently with their personal dollars. When you have balance sheets north of $10 million, you’d think fund managers—who are experts in the space—would be calculated and judicious when it comes to investing. But even they can let their emotions get the best of them. They’d tell me, "I believe that valuations are high and I have invested through this before. I already know I’m not supposed to react, but I feel better moving to cash."

There are any number of messy or insolvable worldly concerns that might have an affect on your portfolio. But most worries become irrelevant on their own, given enough time. The graph below illustrates historical “worries” that many investors have had, and how they correlated to market performance. In every case, investors anticipated these events would impact the market and their portfolio in some way, but as you can see, charted against that index’s actual performance, there’s no clear sign that led to change at all. Crashes often happen with no clear associated news on the day of, but when you step back to look years worth of data, the market went right on doing its thing, trending upward over time. Were there periods where the market dipped? Yes, of course. However, they didn’t last long enough to trouble the savvy long-term investor.

Customer Worries Against a Total Market Index (W5000)

Stock market worries

Wilshire 5000 Total Market Full Cap Index©

So what does that mean for the average investor? Even if you happen to “guess correctly” and avoid some downswings in the market, how much was plain luck and how much was solid prediction? Would you be able to replicate a prediction when even experts, with the advantage of time and information, get it wrong too?

Let’s say you cash out at a fortuitous time and avoid a crash. Now you face the question of when to get back in. Can you guess correctly a second time, risking a re-entry into the market when it’s “too high?”

At Betterment, we are strong proponents of the buy-and-hold strategy, because we know that over the long term with market timing, even if you win, you lose (hint: taxes). In other words, how much of your time and energy is it worth to frequently track your investments, make adjustments for a few percentage points in gains, then get hit with taxes?

The Hidden Costs of Worrying, and What To Do Instead

It’s easy for us to say, “Don’t freak out about what you can’t predict.” That’s a logical consolation. But when it’s your money, it’s not always easy to be logical. While you can know investing outcomes aren’t truly within our control, that doesn’t make it any easier to stop worrying. To hack into your own worry, you often have to go deeper than your rational mind.

Here’s one way to think about it, borrowed from Stoic philosophy. According to Epictetus, it’s important to distinguish things that are under our control and things that are not. He advises to continually divide our moment-to-moment concerns into two buckets: the things we can control, and the things we cannot.

Epictetus offers a reminder not to get upset by things we can’t influence, such as other people and external events, and to instead only focus on ourselves and our own behavior.

When you worry, if the future situation you worry about comes true, you effectively live the bad experience twice. It is safe to say that worrying about a thing happening before it actually happens doesn’t make the experience any more pleasant.

By reclaiming your energy every day from your sphere of concern (the range of things that appeal to your emotions) to your sphere of influence (the range of things you can affect) you are continually developing the essential Stoic skill of learning to let go of that which you cannot influence and accept things as they are.

Every choice we make is an expenditure of some sort of time, energy, patience, or well-being. Over time, these expenditures add up to make us better or worse off.

We’ve previously outlined some potential investing actions you can take to avoid knee-jerk reactions to market conditions. But here we’d like to offer additional approaches to how you can redirect your energy:

  • Reach out to and spending time with friends (friendships compound beautifully, if you invest in them)
  • Invest in your physical and mental health (being strong of body, and equanimous in temperament pays tremendous dividends later)
  • Develop new skills or sharpen those that are out of practice (gains founded on steady progress, pursuit of meaning, and achievement last longer, and are more gratifying.

Quality of life compounds, even better than money does. Your time and energy will be best spent on activities within your control that can improve your quality of life. Why worry endlessly about politics, world events, and market movements so much that it affects your ability to lead a happy life? You could be missing out on living a more fulfilling, better life. That result, in our opinion, would be a far more tragic loss than any market crash.