TBH I'm not sure that I consider panic-selling as a form of market timing; it's simply the abandonment of a strategy that in hindsight carried more risk than an investor's personal risk tolerance. I don't really see this as some massive vindication of passive investing.
As always there are two sides to every story, and I'd like to see an analysis of Vanguard investors who had some cash on the sidelines and put it to work in in March-April. Those savvy investors exist too.
Of course the right way to do it is to do nothing, then when things recover back to where they were before, adjust your asset allocation to better fit what your risk tolerance actually is. Panic selling at the bottom is clearly not the right way to react to the realization that you took on more risk than you should have.
I can’t remember where I saw the analysis but I know o have read that overall the drag of having that cash on the sidelines outweighs the times you can get lucky and jump back on the roller coaster as it is starting to go up again.
We only call them 'savy investors' because sometimes it works out. I held substantial cash reserves for a few years because I just knew that the market was long due for a big drop. I was still contributing my max into tax deferred accounts, but I let the cash pile up in a regular old savings account paying nothing. By the time I finally got myself to invest (most) of that cash into a combination of mortgage principal (probably not the ideal way to have spent that money, I know) and VTSAX/VBTLX, i calculated that I had incurred an opportunity cost of about $50K on that cash over 4 years. Had the market dropped and had I been able to push that money in at lower valuations, it would have
seemed like I was a savy investor, but really I would just have been a lucky investor.
If I had that same cash right now sitting in a savings account, I doubt that I would be able to make myself invest it. The market's seeming immunity to the economic reality is just bizarre to us mere mortals. But that doesn't mean it can't sustain these levels or even go higher. Sure, it will tank again eventually. But will that be next month, next year, or 5 years from now? Who knows? Sitting on cash in this interest rate environment along with the inflationary pressures that classic economics tells us
must be on the horizon due to all this helicopter money...there just isn't any logical or clear strategy one can employ.
In the end all we can reasonably do is to follow the basic principals of sound investing. Keep your investment costs as low as you can.
Time in the market is smarter than trying
to time the market. Pick an asset allocation that balances return with your own emotional constitution so that you can get through these huge market swings without doing anything rash, like going to all cash right before the market recovers from a huge drop. Have enough in readily accessible assets that you can support yourself and your family during disruptions in the job market. Hope for the best.