9 minute read
Every financial advisor and investor has asked the question: Should I get out of the market now? Or worse, is now the time to get back in?
It’s an extremely important question. As it’s one that can lead to either potential profits or devastating losses.
But market timing is the siren song of investing - tempting you with whispered promises, though it can ultimately lead to trouble.
History is littered with examples of investors who believed they could anticipate market tops and bottoms - only to realize, in hindsight, that they were either too early, too late, or just plain wrong.
And worse, when you throw emotions into the mix, it quickly becomes a mess. Fear and greed push investors to buy at peaks and sell at lows.
Even some of the greatest investors of our time - Warren Buffett, Peter Lynch, and John Bogle - have cautioned against market timing. Instead, they emphasize staying calm and sticking to a strategy.
Yet, one thing they all seemed to agree on is simple: Buy low, sell high.
So, how do you do that the smart way? Let’s break it down. . .
The Problem: How Do You Even Identify Market Highs and Lows?
Another if not more important question is trying to figure out what “low” and “high” actually mean in real time.
Hindsight makes it look easy, but when markets are crashing, how many investors truly have the conviction to buy? And when markets are soaring, how many have the discipline to sell?
Thus, instead of trying to time the market like throwing darts in the dark, consider a simpler question:
- At a market top, would you rather own more stocks or less?
- At a market bottom, would you rather own less or more?
Most investors want to own less at the top - when risks are highest. And they’d prefer to own more at the bottom - when upside potential is greatest.
Figure 1: Dunham, 2025
Yet, human emotions often lead investors to do the opposite - buying at highs out of FOMO (fear of missing out) and selling at lows out of panic.
This is key because the greatest investors know that market sentiment, investor psychology, and behavioral finance are major drivers of markets in the short-term.
- When prices sink, it’s often because fear and pessimism take hold.
- And when prices surge, it’s usually because greed and euphoria are running wild.
This creates the market’s emotional cycle:
- Greedy sentiment fuels buying > higher prices > more greed > even higher prices.
- Fearful sentiment drives selling > lower prices > more fear > even lower prices.
Thus, the key to successful investing isn’t guessing highs and lows - it’s having a strategy that removes emotion and capitalizes on these cycles.
Or put simply: Buy Fear, Sell Greed.
A Smarter Approach: DunhamDC is a strategy That Buys Fear, Sells Greed
"Be fearful when others are greedy, and greedy when others are fearful."
- When fear dominates and markets are down, it increases exposure - buying when prices are truly low.
- When greed takes over and markets surge, it trims exposure - locking in gains at elevated prices.
More importantly, DunhamDC helps address the biggest challenge retirees face - the Retirement Investment Paradox.
The Retirement Investment Paradox: How to Balance Growth & Risk in Retirement
- Inflation – The constant erosion of purchasing power.
- Longevity – The risk of outliving your savings.
- Sequence Risk – The danger of early losses derailing long-term plans, especially for retirees relying on portfolio withdrawals to fund their retirement (you can read a great and easy-to-grasp piece by Mr. Capizzi on this topic here).
The Paradox: The Very Thing That Helps You Can Also Hurt You
To combat inflation and longevity risk, retirees often turn to stocks - the best historical hedge for long-term growth.
But more exposure to stocks also increases the risk of devastating early losses.
- If markets decline right after retirement, portfolio withdrawals amplify the damage, making recovery nearly impossible (this is sequence risk in action).
So, the very stocks retirees need to fight inflation and support longer lifespans can also be the biggest risk to their financial survival.
This is when the medicine becomes poison.
And here’s the real problem.
When markets fall, time won’t wait. Retirees can’t press pause on their expenses. They still need to pay the mortgage, buy groceries, and cover medical bills - even if their portfolio just took a 30% hit.
A younger investor can ride out the storm. But a retiree selling and withdrawing assets during a downturn to pay these expenses locks in losses permanently - depleting their nest egg faster and faster while making a comeback nearly impossible.
The Perfect Retirement. Until It’s Not.
Just imagine it’s 1999. After years of disciplined investing, your portfolio has grown significantly. You’re ready to retire.
Then, the market turns.
- Between its peak in March 2000 and its low in October 2002, the S&P 500 fell roughly 49% (and when accounting for dividends reinvested, the total return decline was around 42%).
- Investors relying on their equity portfolios for income were forced to withdraw at the worst possible time.
- Many who retired at the peak saw their nest eggs shrink dramatically over the next few years if they held - just as they needed them most.
Sure, the market eventually recovered - but for retirees withdrawing funds to survive, their portfolios never got the chance to recover as they bled it out from retirement expenses (or were forced out of retirement).
And the same virtuous cycles repeat more often than many may realize.
For example, some of the big ones were:
- 2000 (NASDAQ collapse)
- 2008 (Housing Crisis)
- 2020 (COVID Crash)
- 2022 (Fed Rate Hikes)
Some recoveries were faster, and some were slower. But timing is never within an investor’s control.
This is why retirement planning requires a delicate balance - growth to outpace inflation and longevity while managing sequence risk.
The Blind Spot in Dollar-Cost Averaging (DCA)
Now, you might be thinking. . .
“Doesn’t dollar-cost averaging (DCA)4 remove emotion from investing?”
Yes - to a point. But DCA has a blind spot - it ignores price.
For instance, imagine you get $10 every month to buy shares of “Burger World”, your favorite fast-food company.
- Some months, the stock price is $5, so you buy 2 shares.
- But other months, the stock price is $10, so you only get 1 share.
And that’s the problem. If Burger World’s stock keeps rising as markets rally into the future, you’ll keep paying more for fewer shares. Then, if it crashes, those high-priced shares lose value fast - making the downturn even worse.
This is why DunhamDC has a potential edge above traditional DCA strategies – because DunhamDC factors in both price and time.
The Bottom Line: If Emotion is the Enemy. DunhamDC Could be the Solution
As I noted from the start of this article, the greatest investors know it’s not about perfect timing.
No. It’s about having a system that minimizes guesswork, controls risk, and maximizes opportunity.
Markets will rise. Markets will crash. And fear and greed will always be there.
The question is: Will you fall victim to them? Or will you take a smarter, more disciplined approach?
Remember, you can’t control the market, but you can control how you respond to it - and that can make all the difference.
Sources:
- Portfolio Strategy Zooms In on Buffett's Market Tactics
- Dollar-Cost Averaging (DCA) Explained With Examples and Considerations
Disclosures:
This communication is general in nature and provided for educational and informational purposes only. It should not be considered or relied upon as legal, tax or investment advice or an investment recommendation. Any investment products or services named herein are for illustrative purposes only, and should not be considered an offer to buy or sell, or an investment recommendation for, any specific security, strategy or investment product or service. Always consult a qualified professional or your own independent financial professional for personalized advice or investment recommendations tailored to your specific goals, individual situation, and risk tolerance.
Past performance may not be indicative of future results. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. There may be economic times when all investments are unfavorable and depreciate in value.
DunhamDC (“DunhamDC”) is a proprietary algorithm of Dunham & Associates Investment Counsel, Inc. (“Dunham”) that seeks to mitigate sequence risk, which poses a threat to an investor's returns due to the timing of withdrawals. The algorithm employs what Dunham considers to be a pragmatic strategy, generally making incremental increases to the equity allocation when global stock market prices decrease and decreasing it when global stock prices increase. The U.S. variant of DunhamDC generally increases equity exposure as domestic stock prices decrease and reduces equity exposure when domestic stock prices increase. This approach is objective, unemotional, and systematic. Rebalancing is initiated based on the investment criteria set forth in the investors application and is further influenced by the DunhamDC algorithm.
Due to the large deviation in equity to fixed income ratio at any given time, investor participating in DunhamDC understands that a large deviation in equity to fixed income ratio can have significant implications for the risk and return profile of the account. Accordingly, during periods of strong market growth the account may underperform accounts that do not have the DunhamDC feature. Conversely, during periods of strong market declines, the account may also be underperforming, as the account continues to decline, due to the higher exposure in equities. Similarly, if the fixed income investments underperform the equity investments, it is possible that the accounts using the DunhamDC feature may underperform accounts that do not have the DunhamDC feature, even though they may have adjusted the exposure to equity investment before a decline. Therefore, the investor must be willing to accept the highest risk tolerance and investment objective the account can range for the selected strategy. Please see the Account Application for the various ranges.
DunhamDC uses an unemotional, objective, systematic approach. The algorithm does not use complex formulas and is designed to create a consistent process with limited assumptions based on historical data.
DunhamDC may make frequent purchases and redemptions at times which may result in a taxable event in the account and may cause undesired tax-related consequences.
Trade signals for DunhamDC are received at the end of each trading day with the implementation of the trades not occurring until the next business day, which means that there is a one-day lag that may result in adverse prices.
DunhamDC operates within predefined parameters and rules, some or all of which may not be available to review. While this approach can reduce emotional biases and enhance consistency, it may limit adaptability to changing market conditions, economic considerations, or unforeseen events. Extreme conditions may require deviations from the program’s prescribed approach, and such adaptability may be challenging to incorporate. The DunhamDC algorithm is programmed based on specific criteria and rules, it may not capture certain qualitative or contextual factors that can impact investment decisions or movement in the markets. Beyond the initial assumptions used to develop the algorithm, it lacks other inputs or considerations that human judgement and discretion may be necessary to evaluate. DunhamDC may utilize historical data, statistical analysis, and predefined rules. It does not make any predictions and may add to certain investments before they perform poorly or may divest from other investments before they perform well. Dunham makes no predictions, representations, or warranties as to the future performance of any account.
Accounts invested in DunhamDC are subject to a quarterly rebalance to its target allocation at the time based on DunhamDC in addition to the signals provided by DunhamDC at any given time.
Dunham makes no representation that the program will meet its intended objective. Market conditions and factors that influence investment outcomes are subject to change, and no program can fully account for all variables and events. The program requires making investment decisions based on factors and conditions that are beyond the Account Owner’s and Dunham’s control.
DunhamDC is NOT A GUARANTEE against market loss or declines in the value of the account or a timing strategy. Investor may lose money.
Asset allocation models are subject to general market risk and risks related to economic conditions.
DunhamDC has a limited track record, with an inception date of November 30, 2022.
DunhamDC US has a limited history, with an inception date of July 1, 2024.
For more information - please view DunhamInsights.
Dunham & Associates Investment Counsel, Inc. is a Registered Investment Adviser and Broker/Dealer. Member FINRA/SIPC. Advisory services and securities offered through Dunham & Associates Investment Counsel, Inc.