Time in the Market vs. Timing the Market

There's a version of investing that sounds very smart: watch the market, identify when prices are at their lowest, buy at the bottom, ride the recovery to the top, and sell at exactly the right moment. Repeat. Get rich.

The problem is that almost nobody can actually do this consistently — including professional fund managers with entire research teams, real-time data, and decades of experience. The evidence on this is not subtle. Study after study shows that the vast majority of actively managed funds underperform a basic index fund over a 10-year period, and the main reason is simple: trying to time the market costs more than it gains.

So if timing the market doesn't work reliably, what does? Consistent, regular investing regardless of market conditions — a strategy called dollar cost averaging.

What dollar cost averaging actually means

Dollar cost averaging (DCA) just means investing a fixed amount on a regular schedule — say, $100 every month — regardless of what the market is doing that day. When prices are high, your $100 buys fewer shares. When prices are low, your $100 buys more. Over time, you end up with an average cost per share that's lower than if you'd tried to pick your moments and gotten some of them wrong.

Here's a simple illustration of why this works:

Month	Share price	You invest	Shares bought
January	$50	$100	2.0
February	$40 ↓	$100	2.5
March	$30 ↓	$100	3.3
April	$40	$100	2.5
May	$50 ↑	$100	2.0
Total	Avg price: $42/share	$500 invested	12.3 shares @ avg $40.65/share

By investing the same amount every month regardless of price, you automatically bought more shares when they were cheap — without having to predict when that would happen. Your average cost ($40.65/share) ended up lower than the average price over the period ($42/share). The market did the work for you, as long as you stayed consistent.

The hardest part: staying in when it feels worst

Dollar cost averaging sounds straightforward in theory. The hard part is that the moments when it's most valuable — when prices are falling and you keep investing anyway — are exactly the moments when every instinct tells you to stop.

A market dropping 20%, 30%, 40% doesn't feel like "more shares for the same money." It feels like everything you put in is disappearing. The natural human response is to stop investing, or worse, to sell to "stop the bleeding." And that response — rational as it feels in the moment — is exactly what turns a paper loss into a real one and locks you out of the recovery.

"Getting in at a high feels terrible. But calling the bottom is nearly impossible. The only winning move is to not need to be right about either."

The pandemic: a real case study in staying in

In February and March of 2020, the S&P 500 fell roughly 34% in 33 days — the fastest bear market decline in history. IRA balances fell sharply. People who had been quietly building retirement savings for years watched significant portions of their accounts evaporate on paper in a matter of weeks.

The impulse to pull out was completely understandable. What happened next is the part that's harder to explain until you've lived through it.

Feb–Mar 2020

The fall

S&P 500 drops ~34% in 33 days. Retirement account balances fell sharply — months or years of contributions seemingly gone. The news called it a potential depression-level event.

Mar 23, 2020

The bottom nobody called in time

The market hit its pandemic low. Almost nobody knew it was the bottom when it happened — it only became obvious in hindsight, weeks later, when prices had already risen significantly from that point.

Aug 2020

Fully recovered — in 5 months

The S&P 500 had fully recovered all pandemic losses by August 2020 — just 5 months after the low. Anyone who held through the drop was whole. Anyone who kept investing through it had acquired shares at dramatically lower prices.

2021–2022

The soar

The years after the pandemic recovery saw some of the strongest market performance in decades. IRA balances that had looked frightening in March 2020 grew to record highs. The shares bought at the bottom — automatically, through regular contributions — were worth dramatically more.

The people who sold in March 2020 locked in real losses and often missed the recovery entirely — getting back in "when things felt safer" usually meant buying back at higher prices than they sold. The people who kept contributing on schedule — or who increased contributions while prices were low — came out of the pandemic period dramatically better positioned than they went in.

Why trying to time it usually fails

❌ Market timing

Sounds smart, rarely works

Requires being right twice — when to get out AND when to get back in. Miss the 10 best trading days of a decade and you lose most of the decade's returns. Those best days often come immediately after the worst ones.

✓ Dollar cost averaging

Boring — and effective

Requires being right zero times about direction. Works automatically. Buys more when prices are low. Removes emotion from the equation. Decades of research consistently back it as the better approach for most investors.

One of the most cited statistics in this space: if you missed just the 10 best trading days in the S&P 500 over a 20-year period, your returns would be cut roughly in half. Those 10 days are scattered unpredictably across the calendar — and the worst days and best days tend to cluster together, meaning people who sold during a downturn often missed the recovery days that came right after.

💡 The automation advantage

The best DCA strategy is one you set and don't watch

Setting up an automatic monthly contribution to your IRA is dollar cost averaging by design — and it removes the emotional decision-making entirely. You don't have to decide whether to invest this month. It just happens. The months when the market is down and everything feels scary, your contribution still goes in, buying shares at the lower price, without requiring any courage or discipline from you in the moment.

How this connects to your IRA specifically

For people managing the benefits cliff, the dollar cost averaging argument is even stronger than it is for a regular taxable investor. Your IRA contribution is doing two jobs at once: it's protecting your MAGI and your benefits eligibility every month it goes in, and it's buying shares of whatever you're invested in at that month's price. The months when the market is down and you'd be tempted to stop are exactly the months when your contribution is buying the most shares for the least money — and still lowering your MAGI at the same time.

There's no version of this where stopping contributions is the right move, if you can avoid it. Your benefits protection disappears the month you stop. Your average cost per share goes up. And you lose your place in line for the recovery when it comes — and historically, it always has.

⚠ The one real risk

DCA doesn't protect you from a market that never recovers

Dollar cost averaging works because markets, historically, have tended to recover and grow over long periods. This is true for broad market index funds — tracking the whole U.S. economy or global markets — and much less true for individual stocks, which can decline permanently. DCA works best in diversified, broad-market investments. Consistently investing in a single company that goes bankrupt is still a loss.

Set up your automatic contribution

The easiest way to dollar cost average is to set up a recurring monthly IRA contribution at your brokerage. It takes about 5 minutes and removes every future decision from the equation.

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Not sure how much to contribute? Use the calculator to find your number →