The costs of market timing: A look at the SMI

Let's take a closer look at why market timing is risky and why it pays to stay invested through the ups and downs of the markets.

The cost of missed opportunities

The biggest risk with market timing is not the next crash, but missing out on the recovery. Historical data from the Swiss Market Index shows that the days with the highest returns often follow immediately after the sharpest price falls.

One example is October 10, 2008: in the wake of the Lehman bankruptcy, the SMI plummeted by 7.8 percent. Just three days later, on October 13, it shot up by 11.4 percent when the rescue packages were announced. Those who sold in panic had to watch the historic price jump from the sidelines.

Admittedly, there are few trading days when volatility is as high as it was in October 2008. However, a large part of long-term returns is achieved on only a very few trading days.

The long-term costs of market timing

Historically, investors who remain invested regardless of market fluctuations achieve significantly better results than those who try to time the market.

Anyone who missed even the best day between 2006 and 2025 lost over 30 percent in returns compared to a buy-and-hold strategy. Missing the five best days almost halved the cumulative asset growth.

The overlooked costs of market timing

Those who try to «time» the market are not only fighting against statistics, but also against an opaque fee monster. In addition to the opportunity costs outlined above, market timing incurs comparatively high fees and charges, especially for Swiss investors.

Every trade in Switzerland triggers a stamp duty. This amounts to 0.75 per mille for both the buyer and the seller for domestic securities (such as Swiss ETFs) and 1.5 per mille for foreign securities. Added to this are the broker's brokerage fees, often as a minimum fee or a percentage charge.

A buy-and-hold investor only bears these costs for the initial investment and upon sale, and possibly also for any rebalancing. A market timer, on the other hand, pays fees to the government and the bank every time they attempt to beat the market.

If foreign stocks are traded in a foreign currency, banks often add a margin to the exchange rate (FX markup) instead of passing on the interbank rate.

The implicit costs are underestimated. These include the spread, i.e., the difference between the buy and sell price. The more actively you trade, the more often you pay this trading margin. Added to this is slippage: just as you place your order, the market moves against you as if by magic.

While your broker reports explicit transaction costs such as brokerage fees and stamp duties, the implicit transaction costs and FX markup usually remain hidden. The latter are often even higher than the reported fees and taxes. What both transaction costs have in common is that they reduce your return.

«Buy and hold» strategy

Overall, the costs of market timing show that this approach is often more expensive than it seems at first glance. The transaction costs that accumulate over many years weigh on your portfolio like a negative compound interest effect.

If there were reliable signals for market timing, many would use them.

Ultimately, it is better to pursue an investment strategy that matches your financial goals and individual risk profile. A solid, long-term strategy that takes market fluctuations into account helps to avoid the cost trap of market timing and maximize long-term returns.

Those who trade very frequently even risk being classified as professional securities traders by the tax commissioner in the worst case. This would result in a series of additional taxes on the realized income.

Our tip: Invest in time, not timing.