Here's the Problem With Market Timing

Avoiding market timing is a lesson that many investors haven't learned yet. It's just rather impossible to know what the market will do from year to year:

In 1995, the market (as measured by the S&P 500) advanced a whopping 37.5%. Many people might have assumed that given the market's long-term average annual gain of around 10%, the next year would likely be a downer.

But as it turned out, 1996 was a big winner, too. And if you bet against the market in 1997, you lost again -- it advanced 33%. Those were heady years. Many predicted that we were surely due for a crash. Yet in 1998 and 1999, the market just kept going up. It was only in 2000, 2001, and 2002 that the market fell, by 9%, 12%, and 22%, respectively. Look at the chart below and you'll see how far most years are from the average of roughly 10%.

*As of Oct. 27, 2008.

Days, too
Days are even more unpredictable than years. On Monday, Sept. 29, 2008, the Dow dropped 778 points, the biggest single-day drop recorded at the time -- representing a loss of about 7% of its value. By mid-October, it had fallen an additional 21%! Many investors bailed out along the way (which you can probably guess, by the fact that the stock market dropped so much).

If they did, though, they missed Oct. 13's record-breaking gain of more than 900 points -- an 11% whopper of a day. There has been more volatility since the 13th, but those who were out of the market on the 13th lost out. We just can't know much about the short term, which is why it's best to invest for the long haul, with money we won't need for at least five years.

So ...
You can offset some volatility with dividend-paying companies, as they can help you sleep at night and can save you from some massive losses. Here are a few you might want to research further:

Source: Yahoo! Finance.

As tempting as it can be, don't try to time the market. The short run is just too unpredictable.