I always urge investors not to try to time the market. Instead, I recommend that investors put as much money into stocks as will still allow them to sleep at night, and to keep that allocation pretty constant. I strongly believe that virtually no one can successfully time the market. There is an old saying in the investment business: "You can always tell the market-timers--they're the ones with the holes in their shoes."
Often, I'm offering this stock market advice at times when the market seems scary, either because of a big drop or high volatility. But it is equally important at times like the present when the market mood is euphoric. There are two opposite temptations at times like this. Some people will fret because they now feel that they have been under-invested in stocks and have missed much of the rally. They suddenly decide to throw caution to the wind and pile fully into stocks before the market goes up further. Other people look at the recent rise in stock prices, become convinced that a big bear market is right around the corner and decide to bail out of stocks. Both temptations are dangerous to your financial health and should be strongly resisted.
Successful market timing requires two different sets of very challenging decisions: when to pull out of the market and when to get back in. It is almost impossible to get both decisions right. I know a couple of people who are still bragging that they pulled out of stocks just before the big market crash in October 1987. Unfortunately, once out of the market, they've never been able to pull the trigger to get back in. As a result, they've missed the more than fourfold gain in the S&P 500 since the 1987 market high.
I also know other people who worried about being left behind when the stock market was hitting new highs in the summer of 1987, and they bought stocks like crazy. Then when the market crashed in October, they panicked and sold everything, locking in big losses. They probably repeated this pattern in 2000 and 2008.
Both of these groups of people would have been much better off to resist their impulses and stay the course with their investment strategy. And that's what I always advise investors to do: choose a reasonable investment strategy and stick with it in both good times and bad.