Market timing entails shifting your money into cash or bonds when you think stocks and stock mutual funds are overpriced and then later reinvesting your money in stocks and stock mutual funds.

Question

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Market timing is the strategy of trying to predict when the stock market will rise or fall and adjusting your investment strategy accordingly. It involves shifting your investments between asset classes such as stocks, bonds, and cash in an attempt to maximize returns. Moving money out of stocks and into cash or bonds when you believe the market is overvalued is an example of market timing. Later, when you believe the market has bottomed out and stock prices are set to rise, you move your money back into stocks. However, market timing is difficult to get right consistently and can be risky, as it involves trying to predict the future direction of the market. Many financial experts recommend a buy-and-hold strategy instead of market timing.

Market Timing Entails Shifting Your Money into Cash or Bonds