Does selling when stocks look expensive beat holding?
Every investor gets the same itch: the market looks expensive, so why not step aside and buy back cheaper? This sheet runs that rule against staying fully invested for 20 years, in a world where the return you earn genuinely depends on the valuation you bought at. The honest answer is not that timing never works, but that most of the damage comes from how long you sit in cash waiting to be let back in.
Personal Finance Advanced Monte Carlo Pro engine
After you install, this is the model to open.
Market Timing vs Buy and Hold
- In your spreadsheet, click the Sortia icon in the strip of icons down the right-hand edge. No strip? Click the arrow at the bottom-right to open it. You can also use Extensions, then Sortia, then Open Sortia.
- Click Start from a template and put that name in the search box.
- Pick the card with that name and click Load this template. It arrives on a new tab with real numbers already in it.
This one runs on a Pro engine, and every free install includes five full-quality runs on your own numbers, shared across all five Pro engines rather than five for each. After that, Pro is $199/year.
The answer
10,000 simulated 20-year paths, each drawing a fresh valuation and a fresh return shock for every year:
- Timing beats buy and hold
- 46% of 20-year paths
- Median ending value, staying invested
- $791k from $250,000
- Median ending value, timing rule
- $737k about $55k less
- 5th-percentile outcome
- +$90k timing ahead in the bad tail
At the classic settings, going to cash whenever the market P/E tops 30 and waiting for it to fall under 20 beats staying invested in 46% of 20-year paths, and it ends with a median of $737,000 against $791,000. What it does buy is a calmer bad case: the worst 5% of timing paths still end near $313,000 versus $223,000 for buy and hold, and only 2% of them finish below the $250,000 you started with, against 7% for staying invested. The cost is the waiting, not the exit. Raise the buy-back threshold from 20 to 30 so you return the moment stocks stop being expensive, and the same rule ends at a median $859,000 and wins 57% of the time.
The model
One row per year for 20 years. Each year draws a market valuation, the valuation shifts that year's expected stock return, and the rule decides whether you are in stocks or in cash before the return is known.
| Starting portfolio | $250,000 |
| Market P/E today | 27 |
| Market P/E at the start of each year | 12 – 22 – 42 (uncertain) |
| Stock return at a P/E of 22 | 9% average, 17% swing (uncertain) |
| Return change per P/E point above 22 | -0.5% a year |
| Cash rate while out of the market | 3.5% |
| Sell when the P/E rises above | 30 |
| Buy back when the P/E falls under | 20 |
| Horizon | 20 years |
Once it is in your sheet
- The model arrives with real numbers in it and runs as it stands, so you can press the button first and understand it second.
- Change the numbers to yours. The sheet marks which cells are inputs and which hold formulas, and most labels carry a note explaining the row.
- Press the run button at the bottom of the panel. It is labeled for the tool you are in, and the result lands on its own tab, with a written reading of it beside the figures.
Never used Google Sheets? Start here goes the whole way, in seven steps, and assumes nothing.
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Every model like this one, and the method behind them: Monte Carlo simulation.