Jill On Money: Markets peak Time to get out?

"She prefaced the meet-up with this note: I'm waiting for the market to drop before putting my recent, big commission payment into the market. This came within days of another message from a listener: Should I do something with my 401(k) before the bottom falls out? If only we knew when that was going to be! I'm often asked to peek into portfolios when stock market indexes reach new highs or after gut-wrenching plunges."

"In both cases, I say, I have no idea what is going to happen in the short term. Perhaps that's due to the fact that I have been at this for almost 40 years, which would qualify me as a seasoned investor. In fact, a more apt metaphor from the cooking world is that I am a tenderized investor, one who has directly felt the heavy force of markets, which has broken down my misguided belief that I could accurately identify asset tops and bottoms."

"The research examined five approaches to investing a lump sum of $2,000 annually over 20 years. There was: the perfect timer, who through dint of luck, invested at the low point of the year; the consistent investor who invested on the first trading day of the year, the monthly investor who divvied up the amount by 12; the bad timer, who invested at the top of the market every year; and the procrastinator who left his money in cash investments."

Many investors delay investing lump-sum proceeds while waiting for market drops, hoping to buy at a bottom, but short-term market direction is unpredictable. Years of market exposure and past losses often erode confidence and create unrealistic expectations about timing tops and bottoms. A Charles Schwab study compared five annual approaches to investing $2,000 over 20 years: a perfect timer, a consistent annual investor, a monthly divider, a bad timer, and a procrastinator who stayed in cash. The perfect timer slightly outperformed others, but the worst outcome belonged to the investor waiting for bottom, who missed substantial stock market growth. Regular market timing is impractical for most investors.

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