A perennial temptation for investors is the urge to quit the market at the top and to get back in at the bottom. While the lure of market timing sells millions of books and is standard fodder for financial television, the reality rarely lives up to the promise.

History is littered with the failed dreams of market timers. Less than five years after the nadir of the financial crisis, some pundits were saying US stocks were over-valued. Another five years on and the market had gained more than 60%.

Not even the gurus have much of a record. Back in 1996, Federal Reserve chairman Alan Greenspan warned of "irrational exuberance" in the stock market. But we now know that the market went on climbing for three years before the dot-com bubble burst.

Even if your logic about valuations is impeccable, there’s no guarantee the market will come around to your view. As someone once said, markets can stay irrational longer than you can stay solvent.

But the most overlooked challenge with market timing is that it requires you to make TWO correct decisions: Firstly, you must get out at the right time. Secondly, and often more challengingly, you must know when to get back in.

Think back to the global financial crisis. Plenty of people were throwing in the towel by early 2009. But how many got back in in time to enjoy the big bounce that followed in the second and third quarter of that year?

The fact is markets don’t move in a straight line and big gains (and losses) can come in relatively short periods. Not even the professionals have much of a track record in successfully negotiating these unpredictable twists and turns.

So, if market timing is a mirage, what can you do? Here are five alternative options that make more sense — and none requires you to possess a crystal ball.

1. Take a long-term perspective

"The historical data support one conclusion with unusual force,” the index fund pioneer Jack Bogle once wrote. “To invest with success, you must be a long-term investor." Instead of trying to time the ups and down of the markets, why not simply change your time horizon? Over the very long term, patient investors have almost always been rewarded. Of course, not everyone can take the long view. Those, for example, who are about to retire or who need to access their money in the next two or three years, don’t have that luxury. But if you don’t need it for, say, 15 years of more, you can afford to look at the big picture.

2. Construct a portfolio for all market conditions

Everyone should have a balanced asset allocation — certainly a mix of stocks and government bonds, and perhaps property as well — that matches their capacity for risk. A defensively-minded person may only have 50% of their portfolio in stocks, with the rest in bonds. The right mix also depends on your age, goals and circumstances. Whatever your risk capacity, diversification is key. Spreading your risk across different asset classes and geographies will reduce the impact of a steep decline in one particular market. Ultimately, it’s your asset allocation that is going to be the most important driver of your investment outcome.

3. Periodically rebalance your portfolio

Generally, the less you tinker with your portfolio the better. That’s not to stay you shouldn’t touch it at all, but any changes you do make should be done in a strategic, structured and disciplined way that reflects your needs and circumstances. A good discipline to adopt is to rebalance your portfolio periodically, to restore your original asset allocation. This means, every year or so, selling sone of the winners and buying some of the losers. It seems counter-intuitive, but effectively it forces you to sell high and buy low, which is just what you should be doing. It's a much better strategy than falling victim to knee-jerk responses to the latest bout of market volatility, which inevitably involve emotional, short-term decision-making.

4. Pound cost average

Another option, if you really are worried about the stock market and want to reduce your risk, is “pound cost averaging”. Say, for example, you have a sizeable sum of money — an inheritance, say — that you want to invest. Instead of going all in and investing the full amount in one go, you can drip feed small amounts into the market over a period of time. Incidentally, financial economists don’t think this approach makes much of a difference from an investment perspective and you might end up with slightly lower returns. But it’s a useful way of helping you sleep at night and minimising regrets.

5. Increase the size of your cash reserve

Finally, another strategy could to consider is to hold a larger cash reserve — either within your portfolio or in another account. Everyone should hold enough cash to cover around six months of living expenses, in case of unexpected medical bills, or losing a job, for example. But nervous investors may prefer to hold rather more than that. The advantage of increasing your cash reserve is that, in the event of a market downturn, you can see it as a buying opportunity and use your extra cash to increase your market exposure.

SUMMARY

In summary, timing the market — while superficially an attractive idea — is fraught with danger. If you get lucky, great, but there’s no method to it. We’ve seen that not even the gurus are much good at it.

The good news is that second-guessing the market just isn’t necessary. With the right outlook and a methodical process, you can achieve better results — and enjoy a smoother ride along your investment journey.

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Picture: Veri Ivanova via Unsplash