After two consecutive years of stock market returns exceeding 20 percent, many investors are contemplating pulling back their equity exposure amid political uncertainty, global tariffs, and broader economic concerns. The temptation to time the market—to step aside until the volatility passes and re-enter at a more opportune moment—can be strong. But history and data suggest that market timing is more likely to hurt than help. The best course of action? Stay invested, but stay smart.
The Cost of Missing the Best Days
Market timing is appealing in theory but nearly impossible to execute successfully. Investors need to correctly predict not just when to exit the market, but also when to get back in. The odds of consistently nailing both decisions are slim to none.
A compelling statistic from J.P. Morgan underscores this challenge: The S&P 500’s average annualized return over the past 20 years was 10.2 percent. However, if an investor missed just the 10 best trading days over that period, their return would be nearly cut in half. In other words, the bulk of market gains occur in just a handful of trading days—days that are nearly impossible to predict in advance.
The Long-Term Optimism of Markets
If market timing is a foolhardy mission, why should investors stay invested? Because at its core, the stock market is a long-term reflection of global economic progress. While short-term volatility is inevitable, over time economies tend to grow, innovation drives productivity, and corporate earnings rise.
As Steven Pinker and other researchers have documented, global poverty has declined, life expectancy has increased, and health outcomes have improved. Despite periods of economic uncertainty, human progress has been remarkably consistent. This, in turn, fuels long-term equity returns. The stock market, in many ways, is a bet on continued economic progress—and historically, that has been a winning wager.
A More Strategic Approach: Adjust, Don’t Abandon
Of course, staying invested doesn’t have to mean standing still. There is merit to strategic portfolio adjustments, particularly in response to valuation disparities across global markets.
For instance, consider shifting some exposure out of the U.S. and into Europe. As of early 2025, the European equity market had a forward P/E ratio of 13.84. In contrast, U.S. large-cap stocks had a forward P/E of 21.49. Investors seeking diversification may benefit from increasing their allocation to European equities. One reason why, not surprisingly, year to date European equities are outperforming their U.S. counterparts.
The Perils of Panic Selling
Every market cycle has its share of naysayers who believe the next major crash is imminent. And indeed, if we are on the verge of a 1929-style collapse, then none of these observations may apply. But history also suggests that betting on catastrophe is a losing strategy.
During the COVID-19 pandemic, for example, the S&P 500 plunged 34 percent in early 2020. Some investors panicked and sold their holdings, expecting further declines. But within months, the market had rebounded, ending the year with a 16 percent gain, before adding a further 25 percent in 2021. Those who stayed on the sidelines waiting for an “all-clear” signal missed out on the recovery
Conclusion: Discipline Wins the Long Game
The most successful investors aren’t those who perfectly time the market, but those who stay committed to a long-term strategy while making prudent adjustments. We know that past does not foretell future market behavior, but we can be informed by history.
For those still tempted to time the market, consider this: Wall Street’s own track record of predicting short-term returns is dismal. Over the past 20 years, market strategists’ annual return forecasts have had little correlation with actual performance. And truly, if the professionals can’t get it right, why should individual investors expect to?
So instead of trying to predict the next downturn, focus on what’s within your control: diversification, preservation of appropriate liquidity, valuation-aware asset allocation, fee minimization, and the discipline to stay invested. History does inform—market timing doesn’t work, but patience and strategic investing do.
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