Five Reasons Not to Time the Market

Determining the right moment to scoop up shares of Goldman Sachs(GS Quote) or the SPDR Barclays Capital High Yield Bond(JNK Quote) during the financial meltdown would have been like trying to catch the proverbial falling knife.

Even now, as the Dow hovers back at 10,000, disparate results from companies like Morgan Stanley(MS Quote) and Boeing(BA Quote) prove how difficult it is to pick a "winner in any market environment."

Trouble is, market timing is a siren's song that inevitably leaves investors worse off than if they had remained fully invested. Consider the following reasons not to time the market:

1. Stock prices rise more than they fall. Bear markets are brutal, no question. But their losses pale in comparison next to the gains to be made (or missed) in bull markets.

Consider the 10 bull markets since 1950. They have included several massive run-ups of more than 250%, including a 302% gain from October 1990 through July 1998. And the average bull market has lasted more than four years and returned more than 130%. The moral: Historically, bull markets have greatly exceeded bear markets in terms of both duration and return.

2. You'll be tempted to buy and sell at the worst possible times. Market timers are most likely to buy stocks after those stocks have already gained and sell them after they've declined. For example, investors plowed almost $190 billion into stock funds during 1999, just as stock valuations were approaching their breaking points. Three years later, investors sold more than $800 billion worth of equity fund shares as valuations were reaching their nadir during the four months ended September 2002 -- just in time to miss the latest bull market's better-than-50% gain through early May 2006.