Does Market Timing Work? What Schwab's Five-Investor Study Actually Shows

The most expensive question in investing is “should I wait for a better price?” You’ve got cash to put to work — a bonus, a refund, an annual IRA contribution — and the market just hit a record, so waiting for a dip feels prudent. The Schwab Center for Financial Research ran the numbers on exactly that instinct, and the result is more useful than the usual “you can’t time the market” platitude.

The surprising finding isn’t that market timing fails. It’s the shape of the failure: even a hypothetical investor with perfect, impossible foresight beat a do-it-immediately investor by only a small margin — while the investor who kept waiting for the right moment finished far behind everyone. The upside to timing is tiny; the downside to hesitating is enormous. That asymmetry is the whole lesson.

This post walks through the study, the actual dollar figures, why immediate investing does so well, and — because the source is a brokerage with a thesis to sell — the caveats worth holding in mind before you treat it as gospel.

The setup: five investors, 20 years, same money

Schwab modelled five hypothetical investors, each given $2,000 at the start of every year for the 20 years ending in 2024, each leaving the money invested in the S&P 500. The only thing that differed was when each one put the annual $2,000 to work:

• Peter Perfect — perfect timing. Every year he waited and invested at the exact lowest closing price of the S&P 500 that year. This requires foresight no human has; he’s the unbeatable benchmark.
• Ashley Action — invested her $2,000 on the first trading day of each year, the moment she had it. No timing at all.
• Matthew Monthly — split the $2,000 into twelve and invested a piece at the start of each month. This is dollar-cost averaging.
• Rosie Rotten — the unluckiest possible timer: she invested each year’s $2,000 at the single highest closing price of that year.
• Larry Linger — never bought stocks at all, parking the money in Treasury bills every year, perpetually waiting for a better entry point that never felt right.

The design is deliberate: it isolates timing by holding everything else — the amount, the index, the holding period — constant.

The results

After 20 years (2005–2024), the ending wealth landed in the order you’d expect, but the gaps are the story:

Investor	Strategy	Ending wealth
Peter Perfect	Bought the exact annual low	$186,077
Ashley Action	Invested immediately	$170,555
Matthew Monthly	Dollar-cost averaging	$166,591
Rosie Rotten	Bought the exact annual high	$151,343
Larry Linger	Never invested (T-bills)	$47,357

Perfect timing won — but Ashley, who put her money in the instant she had it with zero strategy, trailed the perfect timer by just $15,522 over two decades. That’s about $700 a year for a feat that is, in reality, impossible to pull off. Dollar-cost averaging came third, only a little behind immediate investing.

The far more dramatic gap is at the bottom. Larry, who kept waiting for the perfect moment, finished with $47,357 — less than a third of even Rosie, the worst-possible timer who bought every annual peak. Larry’s caution cost him $103,986 relative to the unluckiest investor in the study. Hesitation was multiples worse than the worst timing.

Why immediate investing does so well

The mechanism is simple: the market goes up more often than it goes down. Across the rolling 12-month periods Schwab studied (1,177 of them, monthly, back to 1926), the market rose 75.6% of the time. If prices usually rise, then deploying money sooner usually means buying at lower prices than you’d get by waiting — and waiting in cash means sitting out the growth entirely.

That same fact explains why Ashley (all-in at the year’s start) slightly beat Matthew (spreading purchases across the year): in a market that trends up, the early-in-the-year dollars caught lower prices on average than the dollars Matthew held back for later months. It’s the same reason lump-sum investing tends to edge out dollar-cost averaging over time — not always, but more often than not, because the average day in the market is an up day.

The result holds across history

This isn’t an artifact of one lucky 20-year window. Schwab ran all 80 rolling 20-year periods back to 1926 (1926–1945, 1927–1946, and so on). In 70 of the 80, the ranking was identical: Peter, Ashley, Matthew, Rosie, Larry. In the 10 exceptions, investing immediately never came last — it landed second four times, third five times, and fourth just once, during 1962–1981, one of the rare extended stretches of weak equity markets. Extending the lens to all 30-, 40-, and 50-year periods produced the same pattern.

What independent research says

Schwab isn’t the only firm to have run this question, and the independent work both corroborates the core finding and sharpens it.

The most rigorous comparison is Vanguard’s (2023), which tested investing a lump sum immediately against dollar-cost averaging across the US, UK, Canada, Europe, Australia and emerging markets. Investing the whole amount at once beat averaging it in about two-thirds of the time (roughly 66–68% in developed markets, lower at ~62% in emerging markets) — for the same reason Schwab’s Ashley beat Matthew: cash left on the sidelines forfeits the market’s risk premium. But the magnitude is small, scaling with how much stock you hold — about 1.2% in ending wealth for a 40/60 portfolio up to 2.2% for all-equity, on a one-year horizon — and Vanguard’s own conclusion is that the lump-sum-versus-averaging choice makes only a marginal difference compared with permanently keeping a cash allocation. Both invested strategies beat cash about 70% of the time — and that gap, invested versus not, is the one that matters, exactly as Schwab found.

Vanguard also adds a nuance Schwab glosses over: for investors with high loss aversion, its utility model finds dollar-cost averaging is the rational choice, because the temporary risk reduction is worth more to them than the small expected return they give up. So averaging isn’t a mistake to be talked out of — it’s a legitimate trade of a little return for a lot of regret-avoidance.

One popular argument for staying fully invested does not survive scrutiny, though. The claim that “missing just the ten best days halves your returns” is challenged by AQR, which argues it is logically flawed: the best and worst days cluster together in volatile stretches, so the risks and rewards of timing are far more symmetric than the scare statistic implies. It’s a weak argument for a defensible conclusion — worth dropping even if you agree with where it lands.

The honest caveats

The data is solid, but the source is a brokerage, and the framing serves its interest in getting you invested. None of that makes the study wrong — but a careful reader holds a few things in mind:

• “Market timing” here is narrow. The study is about when to deploy a fixed sum you already have — your annual contribution. It is not a test of active trading, tactical in-and-out strategies, or moving a whole portfolio to cash and back. It says nothing about those; don’t over-extend the conclusion.
• Larry measures allocation, not timing. Larry didn’t time badly — he held Treasury bills for 20 straight years and never bought stocks at all. His dramatic shortfall is mostly the equity risk premium (stocks over cash across two decades), not evidence about timing skill. A real-world hesitater who eventually invests looks nothing like Larry, so the study’s most shocking number partly measures asset allocation wearing a timing label.
• The dollar figures are vintage-dependent. This is a rolling study; each year’s 20-year window produces different magnitudes. The ranking — Peter, Ashley, Matthew, Rosie, Larry — is the durable result that held across 70 of 80 historical periods. The specific dollar gaps illustrate one window (2005–2024), not fixed constants.
• It assumes a market that rises over the long run. The entire result rests on US equities trending upward across the period. Schwab says so itself, flagging 1962–1981 and warning there’s “always a chance we could enter another period like the 1960s through early 1980s.” A long sideways or falling market would compress these gaps — immediate investing wins because markets historically rose.
• It’s US large-cap, and history is not a promise. The S&P 500 over 1926–2024 is one of the most successful asset runs in financial history. “Past performance is no guarantee of future results” is boilerplate, but here it’s load-bearing.
• Taxes and fees are excluded. Schwab’s footnotes state the examples ignore taxes, expenses, and fees, and that real returns would be “substantially lower.” The ranking would likely survive; the absolute numbers are idealized.
• The conflict of interest is mild but real. A firm that earns fees on invested assets has a structural reason to discourage sitting in cash. The conclusion happens to align with mainstream academic evidence — so this is a case where the messenger’s incentive and the data point the same way — but it’s worth noticing.

This post is general information based on a published Schwab study, not investment advice. It doesn’t account for your situation, goals, or risk tolerance. What’s appropriate for you — including how much exposure to stocks makes sense at all — is a decision for you and, if you have one, a qualified advisor.

Takeaway

The study’s real message isn’t “you should try to time the market because Peter won.” It’s the opposite: timing is so hard that even theoretically perfect timing adds only about $700 a year, while the realistic failure mode — waiting, hesitating, never quite pulling the trigger — is catastrophic by comparison. For most people deploying a known sum on a known schedule, the evidence points to deciding on an appropriate allocation and investing as soon as you have the money, with dollar-cost averaging as a reasonable compromise if a lump sum would keep you up at night or stop you from acting at all. The one thing to remember: in this data, the worst sin wasn’t bad timing — it was not investing.

Sources

• Charles Schwab — “Does Market Timing Work?”, Schwab Center for Financial Research, July 18, 2025 (compliance no. 0825-JL49). All figures — the five investors’ ending wealth, the $15,522 and $103,986 gaps, the 75.6% up-period figure, the 70-of-80 ranking consistency, and the taxes/fees exclusions — are from this article and its footnotes.
• Vanguard — “Cost averaging: Invest now or temporarily hold your cash?” (Megan Finlay and Josef Zorn, February 2023). Source for: lump sum beating dollar-cost averaging ~two-thirds of the time (66–68% in developed markets, ~62% in emerging markets), the ~1.2–2.2% magnitude depending on equity weighting, both strategies beating cash ~70% of the time, and dollar-cost averaging being preferable for highly loss-averse investors. Data: MSCI World and regional indices, 1976–2022.
• AQR — “(So) What If You Miss the Market’s N Best Days?”. Source for the point that the “missing the best days” argument is logically flawed and that the best and worst days cluster, making the risk/reward of timing more symmetric than the statistic implies.