While it may appear in hindsight that certain periods were optimal for investing, attempting to time the market is rarely successful. Historical evidence shows that long-term, consistent investing tends to produce more reliable outcomes. The longer you hold, the lower the probability of loss.
We can consider some scenarios where investors choose either to time the market, or invest and spend time in the market regardless of the conditions. For simplicity, to compare the strategies, we assume annual £20.000 ISA contributions at the tax year’s end. The period in question is between April 2020 to June 2025. Using our Risk Level 5 portfolio (P5), we review three approaches: Scenario 1 is a strategy based on investing during perceived safer or optimistic periods (April 2021, 2023, 2024); Scenario 2 is investing during uncertain, volatile periods (April 2020, 2022 and 2025); and Scenario 3 is investing consistently regardless of conditions.
| Scenario | Strategy Description | Total Value (Jun 2025) | MWRR (%) | Annualised MWRR (%) |
| 1 | Invests only in safe periods | £69,856.25 | 28.18% | 6.13% |
| 2 | Invests in volatile periods, avoids rallies | £74,245.77 | 44.54% | 7.39% |
| 3 | Invests consistently every year | £144,102.02 | 40.70% | 6.83% |
Detailed calculations and assumptions are available on request. Past performance is not a reliable indicator of future performance. The value of investments can go down as well as up.
What can we conclude of the three scenarios?
It is clear to see that Scenario 3 accumulates by far the largest amount of funds, simply because of consistent investing. Irrespective of any growth over these 5 years, any future growth in the the portfolio will result from a more pronounced compounding effect for the Scenario 3 portfolio, because the starting amount of £144,102.02 from June 2025 onwards is considerably greater compared to £69,856.25 under Scenario 1 and £74,245.77 under Scenario 2.
In addition, a much higher amount of funds could be wrapped in the ISA, so any growth on that higher amount will be completely shielded from taxes moving forward. More funds in ISA equals to higher capital on which future growth is applied to, and all that bigger growth is protected from taxes. ISA investments are exempt from income and capital gains tax, subject to annual contribution limits and individual circumstances, which may change in the future.
These scenarios are hypothetical and provided for illustrative purposes only. They do not constitute a projection or guarantee of future performance. Actual investor outcomes may vary.
During April 2020 to June 2025, the P5 portfolio itself has grown by 48.8% (7.9% annualised), despite periods of volatility throughout. For example, investing in P5 throughout this period, the worst drop one would have to endure is negative 14.4% (this is the maximum drawdown of the portfolio over this period). Despite this and other volatile periods, a long-term investor sticking with the P5 would have enjoyed robust growth.
MWRR incorporates the size and timing of cash flows of each investor in the scenarios above, so it effectively measures how much each investor’s own funds grew, not how much the P5 has grown.
Scenario 1 (avoiding investing when the market is uncertain) has the lowest measure for MWRR. This is because the investor chose only to invest when they felt safer, and such an approach oftentimes results in investing when the market is already high, and not investing when the market could be lower. This phenomenon ties up to empirical observation that investors tend to enter (and exit) the market at inopportune times based on sentiment and psychology.
Scenario 2 and 3 have comparable MWRR returns, marginally higher in Scenario 2, suggesting that the Scenario 2 investor (investing in volatile periods trying to capture rebounds) managed to be fortunate enough in putting funds when the market was lower, and not investing when the market was more expensive. The major problem with this approach (as with Scenario 1) is that the total funds under Scenario 2 are about half compared to Scenario 3, as the investor was overly focused on anticipating rebounds in markets and not investing at every opportunity.
Combining these outcomes, it’s a fairly clear conclusion that Scenario 3 (investing whenever possible, under any market condition) places one in the best position to maximise future potential under a long-term financial plan. Returns are robust when measured over the entire period under consideration, averaging out better and worse periods, and most importantly, the big pot accumulated places investor 3 in the best position to keep compounding returns in the future in the same manner.
Historically, no investor has managed to successfully and consistently time the market. Usually, as alluded to above, disturbing the financial plan and thus the compound growth of the portfolios at a sign of trouble is what can really disturb the long-term prospects of growth. This can be illustrated by how much missing just the top few best days in the market can impact returns:
It’s true that ‘downside’ volatility is not pleasant to any investor, however volatility works both ways. Usually, bad periods are followed by strong performance, although it is not always the case. Market timing is hard, and missing the best days can hurt long-term performance. April 2025’s 10% daily S&P 500 surge shows how unpredictable markets are. Long-term success often comes not from avoiding risk, but from staying the course, reinvesting consistently, and letting compounding do its work — especially within a tax-efficient wrapper like an ISA.
As a leaving note, remember that riskier assets have higher long-term expected returns to compensate investors for taking a greater risk of uncertainty and downside volatility. Without this risk, there would be no higher reward. While riskier assets may offer higher expected returns over the long term, they also carry a greater risk of short-term losses. Investors should assess their risk tolerance and financial goals before making investment decisions.
The immediate aftermath of a market correction may provide a sour feeling. As shown in the below chart, there were many and different reasons that made similar past episodes all seem like the end of the world at the time. However, they did have one thing in common: historically, the market did tend to recover with the passage of time. This is what long-term investing is all about.
“The courage to press on regardless – regardless of whether we face calm seas or rough waters – and especially when the market storms howl around us, is the quintessential attribute of the successful investor” – John Bogle
*As with all investing, financial instruments involve inherent risks, including loss of capital, market fluctuations and liquidity risk. Past performance is no guarantee of future results. It is important to consider your risk tolerance and investment objectives before proceeding.
