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Time in The Market Beats Timing The Market (Dalbar Studies)

And what you can learn from this to get better returns on your portfolio…

Time in The Market Beats Timing The Market – almost always, historically.  I will be repeating this over and over to hammer home the point throughout this article.   It is that important of a lesson. 

This is a fact that has been proven time and time again through extensive research and data analysis. Any individual who has attempted to time the market has almost always guaranteed to underperform the overall market averages in the long run.  Let’s start by looking at a chart of one of many studies that show that the average investor underperforms the markets – consistently.  And by a large margin.

Time in The Market Beats Timing The Market  2022 dalbar study
Time in The Market Beats Timing The Market

How much do average investors make a year?  Do individual investors beat the markets?  Would it surprise you to know that study after study shows that most investors grossly underperform the market with below average returns.  Why?  It is often due to investors trying to time the market vs spending time in the market.  Let me explain.

But first, an even more frightening chart that shows the average investor underperforms the market.  Investors always want to know how to beat the market, yet no matter what study it is, or what time period – the results are always the same: Time in the market beats timing the market.

Dalbar Study Time in The Market Beats Timing The Market
*Feel free and share this image, just attribute it with a link Ex. Source: Investors vs Indexes ( www.michaelryanmoney.com)

Time in The Market Beats Timing The Market – What Does it Mean?

It really is as simple as it sounds.  Investors too often make an emotional investment decision rather than sticking with their investment strategies and asset allocation.  Study after study shows this hurts the average investor who then gets below average investment returns.  They are too busy trying to beat the stock market.

Traffic Ahead

Let’s simplify this even further with an analogy I would always talk with clients about.  Have you ever got on the highway and a few minutes later you hit some traffic?  Of course, we all do.  You are sitting there in your lane, and the lane next to you keeps moving.

What do you do? Do you switch lanes and dart in and out of traffic trying to get ahead? I would hope not, because that would be dangerous. 

But you do it anyway.  And then what happens?

Exactly,  The lane you just switched into slows down, eventually coming to a complete stop.  And what happens to the lane you just came out of?  It starts to move and the cars that were behind you start passing you.

Instead, trust your GPS – or in this case your portfolio investment strategy and asset allocation  . Most people try to time the market by trying to move in and out of investments, but that is risky. Instead, if you stick with your investment strategy, eventually the market will clear and you will come out ahead.

Don’t just take my word for it.  People much smarter than me have studied this over and over again.  I am here to help explain this to you so that you understand what is happening, and how to get better returns in your portfolio over time. 

Stock Market Open Today and Is The Stock Market Closed on Weekends?

How to Beat The Market

Investing is exactly the same as being stuck in traffic.  You switch out of your investments into the ‘hot new stock’.  You know how this story goes/  So how do you avoid traffic, or more like how can you avoid making these same investment mistakes?  How can you beat the market?  It’s easier than you think.

Average stock investor under performs cant beat the market index

Source: Dalbar study 2022 QAIB Report

Asset Allocation is the GPS of Your Portfolio

When you embark on a long journey, you likely use a GPS app to avoid traffic. With investing, you have asset allocation as a tool to do the same. Of course, past results do not guarantee future results, but let’s examine what has historically happened to those who tried to time the market.

Trying to Time The Market – Average Investor Underperforms Market

The average investor gets below average returns when they try to time the markets.  Why is that?  Simply, you have to be right so much more often than being wrong.  And as you will see below – if you time the markets wrong it has a devastating effect on your portfolio and investment returns.  Even if you just miss a few good days in the market.

First, let’s take a look at an older Dalbar study of investor returns, from 2014.  You can clearly see that no matter what time period, from 1 year to 30 years – the average investor underperformed the market with returns under the index average.  

Over a 30 year time period, the average equity investor underperformed the stock market by an incredible amount.  11.1% to 3.7%.  THAT IS TRULY INCREDIBLE.

Investor returns fall short dalbar through 12312013 cant beat markeets
Time in The Market Beats Timing The Market

*Feel free and share this image, just attribute it with a link Ex. Investor Returns Fall Short ( www.michaelryanmoney.com)

Now let’s move forward to the Dalbar study from 2020  and see if the investor gap to S&P 500 remains.  You will see the gap is just as bad as before, the percentage of investors that beat the market was still near zero.  The average investor lagged the S&P 500 by about 5% over a 30 year period. What does that mean in dollars?  

Investor returns fall short dalbar through 12312013
*Feel free and share this image, just attribute it with a link Ex. Source: Average Investors Returns ( www.michaelryanmoney.com)

The average investor would have turned $100,000 into $437,161 – while the S&P 500 index would be worth $1,726,004. You may start to wonder – can investors beat the market?

Well in this chart, I also added in a few more data points to look at.  Bond investors are just as bad as stock investors at trying to beat the market.  What you will find very interesting is that, although bond investors have trouble beating the bond market – they are nowhere near as bad as stock investors?

Why?  Simple answer is that the bond market is less volatile than the stock market.  Secondly, bond investors are typically longer term investors than stock traders.

What Happens When Investors Try To Time The Markets?

So let’s now take a look at what happens when investors try to time the stock market.  What happens if you miss the best few days in the market, how would that impact your portfolio returns?

stock market returns if you missed the best days
*Feel free and share this image, just attribute it with a link Ex. Source: Market Returns if You Missed The best Days ( www.michaelryanmoney.com )

What would your rate of return be if you pulled out of the markets and missed a few days?  Notice how the average investors return we saw earlier starts to match up with the investors who are missing the top 20, 30 or 40+ days invested?  Even more pronounced – look at how much money the different portfolios grow to!

You can see in the DALBAR study below found that the average equity mutual fund investor severely underperformed by trying to time the market and missing just a few days of investing.

timing the market poorly sp500 hypothetical $20000 investment
*Feel free and share this image, just attribute it with a link Ex. S&P 500 If You Missed Days ( www.michaelryanmoney.com)

Is There Any Value In Working With a Financial Advisor Then?

If all you did was work with a financial advisor who prevented you from making emotional financial decisions – you can see in the multiple studies above – they would be worth their weight in gold.

The one downside or critique of hiring a wealth manager is the cost.  And I agree, costs can add up.  A 1% investment advisor fee plus the fee’s your investment will charge you.  You could be looking at 2% a year in investment cost – that adds up over time.  But look at the above charts earlier in the article – and show me one time where the average inverter just underperforms the market by only 2%Stop worrying about the cost of your investments, and worry about the bigger problem – YOU.

Time in The Market Beats Timing The Market

As a matter of fact, the pioneers of low cost investments, Vanguard, even see the value in a Financial Advisor.  Read the study here and see how Vanguards research puts the value of working with a financial advisor or financial planner at about 2% a year…

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Is It Worse Than We Thought?  No, And It’s Not YOUR Fault

Look at this incredible chart by JP Morgan about Diversification and Asset Allocation. 

Take a close look at the chart below, towards the right side.  Notice which is one of the worst performing asset classes – barely beating out cash and inflation? 

The average investor…  Let me say it one more time – Time in The Market Beats Timing The Market

If you are interested in a more in depth read, I suggest that you download this research report: The Challenge of Market Timing Systems

One more great piece I can’t suggest enough is by MFS investments: Managing The Ups and The Downs

It’s not your fault – it’s human natures fault!

Individual Investors Need Help

The majority of individual investors lack knowledge and experience, adding to the dangers of human nature. Numerous DALBAR studies, dating back as far as 1984 and covering a period of 30 years, have demonstrated this. Investors have the opportunity to learn from their mistakes throughout this time span, which includes both bull and bear markets. It is evident that they are not, however, picking up on the fundamentals of wise investing.

If you are thinking this doesn’t pertain to you – I hate to tell you, it does.  You may have had a good month, or a good year.  Or you just remember your winners more than your losers.  But unless you are the fraction of 1% of investors who beat the markets consistently over time – you may want to reconsider and take a look through this article again.

For a better explanation than I could provide, I will link to this excellent article to further explain.  Why do investors underperform?


Still not convinced that emotions take over the investor and cause them to miss out on market returns? According to The Courage of Misguided Convictions the 20 Most active traders during their study had an average annual portfolio return of 11.4%

How much did the least active 20% investors fare? 18.5% return. And that is during a GREAT market being studied – when you would expect people to invest less emotionally. Less active traders still greatly outperformed those who were trying to time the markets.

So What Can Investors Do To Try To Beat The Market?

There are a number of things that investors can do to try to beat the market. Some of these are:

  1. Diversify your portfolio: One of the best ways to protect yourself against market volatility is to diversify your portfolio across a number of different asset classes. This way, if one asset class falls in value, you will hopefully be offset by gains in another.
  2. Invest in quality companies: Another way to try to beat the market is to invest in high-quality companies that have a track record of outperforming the market. These companies tend to be well-managed and have strong fundamentals.
  3. Use a disciplined approach: A disciplined approach to investing, such as following a strict set of rules or investing according to a particular strategy, can help you avoid making emotional decisions that can hurt your returns.
  4. Stay patient: One of the most important things to remember when trying to beat the market is to stay patient. It can take time for your investments to achieve their full potential, so it is important to be patient and not to sell too soon.
  5. Have realistic expectations: Finally, it is important to have realistic expectations when trying to beat the market. It is important to remember that there will be times when the market outperforms your expectations and times when it falls short. Trying to beat the market is a long-term game and it is important to stay focused on your goals.

It is said that 91.5% of a portfolio’s return is attributable to its mix of asset classes. In studIES, individual stock selection and market timing accounted for less than 7% of a diversified portfolio’s return

You Need Asset Allocation & An Investment Strategy

When it comes to investing, there are two key concepts that you need to understand in order to be successful: asset allocation and investment strategy.

  • Asset allocation is the process of dividing your investment portfolio among different asset classes, such as stocks, bonds, and cash. The idea is to diversify your holdings so that you are not too exposed to any one type of investment.
  • Investment strategy is the second key concept. This refers to the specific investments that you choose to hold in your portfolio. For example, you might choose to invest in stocks that pay dividends or in bonds that are issued by companies with strong credit ratings.

The two concepts of asset allocation and investment strategy are intimately linked. Your investment strategy will determine which assets you buy and hold in your portfolio. And your asset allocation will determine how much risk you are taking on.

There is no one “right” way to allocate your assets or to choose an investment strategy. The key is to find an approach that is suitable for your individual circumstances.

If you are working with a financial advisor, he or she can help you develop an asset allocation and investment strategy that is right for you.

A widely cited study of pension plan managers saYS that 91.5% of the difference between one portfolio’s performance and another’s are explained by asset allocation.

If the above two quotes are true – shouldn’t you be spending 91% of your time and energy understanding Asset Allocation, and not picking stocks or timing the market?

In the interim, I cannot suggest enough that you read the following articles ASAP:

Related Reading: Asset Allocation Articles

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Average Investor vs. The Markets in 2021 – Summary Dalbar Study Findings 2022

  • The third-largest underperformance ever recorded by the QAIB survey, which dates back to 1985, was experienced by the average equity fund investor, who underperformed the S&P 500 by more than 10% (18.39 percent vs. 28.71 percent).
  • The equity index funds, equity value funds, and real estate sector funds provided buy-and-hold investors with the highest average returns in 2021. Bond fund investors performed poorly, according to Dalbar’s Quantitative Analysis of Investor Behavior (QAIB) for the time frame ending December 31, 2021.
  • According to Dalbar, the typical investor has continued to allocate around 70% to stock and 30% to fixed income since 2017. The inflation rate in 2021 was 7.04 percent. 
  • Despite a massive market crash in 2020, there was an investor gap (difference between index performance and average investor performance) in 2021 of 1.31 percent. A $100,000 buy-and-hold strategy would have generated $28,705 in profits.
  • Investors in fixed income funds on average finished 2021 with a negative return (1.55 percent), compared to the Bloomberg Barclays Aggregate Bond Index’s 1.54 percent. 
  • The best-performing sector fund investor in 2021 was the typical real estate investor, who earned 38.89 percent.


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Michael Ryan
Michael Ryanhttps://michaelryanmoney.com/
A former stockbroker, financial planner, and owner of my own financial planning practice and then a property & casualty agency. I have since retired and decided I want to help individuals and business owners by offering personal financial coaching. And now, I have started my blog - www.michaelryanmoney.com - to bring financial literacy to everyone. In a short time I have already been quoted and featured in US News & World Report, Business Insider, Yahoo Finance, and more (https://michaelryanmoney.com/home/press/) As a financial planner, I helped people from all walks of life. If you have questions about money, I will help you find the answers at www.MichaelRyanMoney.com
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