Your portfolio's hitting record highs and you're getting that itch. You know the one—sell now, hoard cash like some modern Scrooge McDuck, then swoop back in when stocks go on sale.
God, it sounds perfect on paper, doesn't it?
I've spent nearly a decade watching professional money managers try this exact strategy. These folks had Bloomberg terminals, proprietary algorithms, and research teams that cost more than your house. Most of them still couldn't nail market timing consistently. Yet somehow, regular investors with day jobs and fantasy football teams to manage believe they've cracked the code.
Look, I get it. The temptation is real.
When I think about market timing these days, I use what I call the "Regret Minimization Framework." It's not about perfect returns—it's about which mistake you'll kick yourself harder for making. Because trust me, you're gonna mess up somewhere.
Sell now and watch stocks climb another 15%? Pain. Stay invested through a correction? Different flavor of pain.
The numbers tell a brutal story (sorry, I'm one of those annoying journalists who actually likes data). The S&P has historically returned about 10% annually. But—and this is the part everyone conveniently forgets—if you missed just the 10 best trading days over two decades, your returns get chopped roughly in half.
Half!
Miss the top 20 days and you might as well have kept your money under your mattress. The real kick in the teeth? Many of those stellar days happen within spitting distance of the worst days. The market doesn't exactly text you a heads-up before these wild swings.
"But this time feels different!" you protest. "Valuations are stretched! The yield curve did that thing!"
Sure. Maybe. The problem is that "feels different" has correctly predicted approximately 27 of the last 3 market corrections. Not great odds.
I'm not saying a pullback isn't coming—they always do eventually. Markets fluctuate; that's literally in the job description. But selling everything creates a second, equally nasty problem: when do you get back in?
The perfect bottom rarely arrives with flashing neon signs and a marching band.
(I've covered market corrections since 2008, and I've yet to see CNBC run a "BUY NOW, ABSOLUTE BOTTOM CONFIRMED" chyron when it actually was the bottom.)
By the time most investors feel comfortable that the worst is over, markets have typically already rebounded 15-20% from their lows. The best buying opportunities feel like jumping into a burning building, not like snagging discounted merchandise at a clearance sale.
Taking profits feels good. Cash feels safe. I remember interviewing a retiree in 2009 who'd gone all cash in early 2008. He felt like a genius... until he was still sitting in cash in 2013, having missed a massive recovery.
Maybe the issue isn't timing but allocation. If your portfolio has you breaking out in cold sweats, perhaps trimming positions to rebalance makes more sense than going full cash.
After all, your portfolio reaching all-time highs isn't a problem—it's actually what it's supposed to do over time. The S&P 500 has set over 1,100 record highs since inception. Selling at each one would've been... suboptimal.
Successful investing isn't about nailing peaks and troughs. It's about having an allocation you can stomach through market cycles, adding regularly, keeping costs low, and not doing anything spectacularly stupid when CNBC's "Markets in Turmoil" special is airing.
But hey—if you do manage to time everything perfectly, drop me a line. I'll feature you in my upcoming piece: "Things Statistically Less Likely Than Getting Struck By Lightning While Holding a Winning Lottery Ticket."
I won't hold my breath.
