The holy grail for investors is to buy low and sell high, but the brutal truth is that few people manage to get this right consistently. “Timing the market” sounds like a genius move, but is a losing game for most investors in reality. The alternative? Staying invested, letting time and compounding growth do the heavy lifting. History has proven that those who try to outsmart the market usually end up worse off than those who simply stay in it. This paper breaks down why time in the market beats timing the market – and why patience, not prediction, is the real key to wealth.
To illustrate the value of a long-term versus short-term mindset, consider the following chart showing the S&P 500 Total Return Index using daily data since 1970. The index shows the steady upward trend of US equities, punctuated by temporary episodes of downturns.[1] A long-term mindset focused on multi-year performance seeks to capture the return potential arising from secular, fundamental forces: market competition that enhances profitability, durable trends that bolster revenue growth, and greater financial market participation which deepens demand for financial products. These are some key fundamental drivers underpinning the long-term growth in equities.
Exhibit 1: S&P 500 Total Returns Index (in natural logs, daily observations, 1970-2024)
Source: Bloomberg, Bank of Singapore.
In contrast, a short-term mindset aims to time entry and exit to maximise returns. This has to be timed exquisitely – selling before a drop and buying back before a rally – in order to be profitable. Most investors get one or both of these decisions wrong, held back by fear of missing out and selling a rally, or fear of entering a market that has sold off.
Timing is crucial, and the costs of bad timing can be significant. Statistical evidence shows that missing just a few of the best-performing periods significantly reduces returns. The following example shows the final value of USD100 invested in the S&P 500 Index in 1970 for an investor who stays invested through 2024, and the final value of the same initial USD100 if the investor misses the best 1% of weeks. The disparity is stark.
Exhibit 2: Value of USD100 invested in 1970 in the S&P 500 Index when fully invested, and when missing the 1% best weekly returns
Source: Bloomberg, Bank of Singapore.
Weekly (or other such high frequency) returns are random in nature, such that no clear pattern exists between current observations and previous ones (the following scatter plot illustrates this by mapping weekly returns vs the previous week’s). Moreover, factors driving high frequency returns are difficult to predict (more on that later). Hence, perfect timing is a Herculean task.
Exhibit 3: S&P 500 Index weekly total returns versus previous weekly returns (1970-2024)
Source: Bloomberg, Bank of Singapore.
Instead, mistakes in timing are often made, with missing the top 1% returns a stylized, but not outlandish example. The best and worst weeks are frequently close together: historically, the stock market’s biggest upswings often happen immediately after its biggest downswings (highlighted in the bottom right quadrant of the above chart). Well-documented investor behavioural biases mean that fear and panic can drive impulsive and sub-optimal decisions, such as selling at the bottom, forgoing the recovery phase, which often includes the top weekly performance.
Mindset shift: Reframe the time frame
Intentionally pivoting the focus from daily, weekly or monthly returns to a longer time horizon, such as annual or multi-year, shifts the perspective from short-term noise to long-term growth, reinforcing the case of time in the market over timing the market. The following chart shows the share of positive returns in the S&P 500 Index using different frequencies (i.e., returns computed over daily, monthly, quarterly, annual and multi-year horizons).
Exhibit 4: Share of positive total returns in the S&P 500 Index over 1970-2024 using returns computed over different frequencies
Source: Bloomberg, Bank of Singapore.
Investors focused on daily returns observe 54% positive days vs 46% negative. These returns fluctuate significantly, and can lead to stress and impulsive decision making, such as panic selling and overtrading. Moreover, many factors that exert a large impact on short-term return dynamics – such as geopolitical events, jolts to market sentiment, and technical factors – are at best difficult to predict, and often, impossible to anticipate (see the top part of Exhibit 5, which lists the high impact” factors driving daily performance). Overconfidence bias leads investors to believe they can consistently predict market movements, when in fact, many of the short-term drivers are outside the forecasting realm.
Exhibit 5: Factors driving short-term and long-term performance of equity markets
Source: Bank of Singapore.
However, as the horizon expands beyond daily, to monthly or even multiyear frames of reference, the share of positive return outcomes rises (see Exhibit 4): higher frequency fluctuations are smoothed out, and fundamental factors that drive earnings prevail. Measured over a 12 month horizon, the share of positive outcomes jumps to 80%, and for investors patient enough to invest over a full business cycle (usually 7 years), the proportion of positive return outcomes jumps to 98%, as peaks and dips in returns associated with business cycle fluctuations are levelled out.
Moreover, the factors that drive long-term multi-year performance can be more systematically approximated, as illustrated in the bottom half of Exhibit 5, listing “high impact” factors for annual returns: for example, pre-determined demographic trends, and estimates of long-term economic growth grounded in equilibrium concepts around labour and investment growth, contribute to greater conviction around forecasting. Hence, by pivoting to a longer-term lens used to evaluate investments, investors can gain some assurance and benefit from a higher probability of positive performance, anchored by durable hypotheses backing returns.
Compounding: the “8th wonder of the world”
A notable benefit of a long-term investing strategy is access to compounding growth. Compounding is a powerful tool for building wealth, yet impossibly underappreciated: with compounding, each year’s return is reinvested and added to the principal, and this new total has the potential to earn more returns. This creates a snowball effect, where investments can grow exponentially. To reap the benefits of compounding growth requires time in the market to reap the returns on returns. Without reinvestment of returns, the investment grows linearly. Investors who trade around and stay for the short term, can at best capture a simple (non-compounded) return.
To compare the materially different outcomes of compound vs simple returns, the following exhibit illustrates a stylized example of a $100 investment earning 8% consistently over 20 years. In the compounding instance, the returns are reinvested and added to the principal, with the total amount earning 8%: $8 earned in year 1 is added to the original $100, such that 8% on this total $108, or $8.64 is earned in year 2, and 8% on $116.64 (equal to $9.33) is earned in year 3, and so forth. In the case where returns are not reinvested, the investment generates 8% on the original principal (a fixed $8) per annum, and the investment grows linearly by $8 a year. The gap between compound and simple returns widens with time: at year 1 the difference is value between a compounding vs a simple return portfolio stands at zero, while at year 20 this gap widens to $206, or a considerable 80% of the simple return portfolio. Hence, the longer investors stay in the market, the more compounding works in their favour.
Exhibit 6: Illustration of $100 returning 8% simple vs compounded return over 20 years
Source: Bloomberg, Bank of Singapore.
In the real world, returns are rarely stable or predictable, as in the above stylized example. Time in the market is not without costs, as it exposes investors to the risk of drawdowns, which we have described in great detail in Navigating Drawdowns.
Strategies for Maximising Time in the Market
Given the benefits of time in the market, and the difficulty of timing the market, it is worth considering some useful risk management strategies to maximise time in the market, as well as stressing the importance of harnessing compounding and approaching markets with a long-term mindset.
Closing thoughts
Investing success is not about perfectly timing market highs and lows: it’s about staying invested and letting time work in your favour. The data consistently shows that those who remain in the market benefit from compounding, long-term economic growth, and the recovery of short-term downturns. While daily and weekly price movements are driven by noise, fundamentals drive equity performance over years and decades. By focusing on strategies such as DCA, diversification, and reinvesting dividends, investors can avoid emotional pitfalls and maximise their wealth over time. In the end, the most reliable way to build long-term financial success is not predicting the market’s next move – it’s staying in it.
[1] We show the total return index in logarithmic scale, in order to capture the compound growth more accurately. As we have shown in previous primers, equity markets grow exponentially, not linearly, due to compounding returns. A logarithmic scale better represents this growth by making percentage changes appear proportional, regardless of starting value. A linear scale can make recent gains look much larger than early gains, even if percentage increases are the same. A log scale normalises this effect, showing consistent representation of identical growth magnitudes over time.
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