Thursday, December 17th, 2020
“Investing at All-Time Highs in the Stock Market”
“Is now a good time to invest this extra cash I have, even with the market at or near an all-time high?
This is a common question we get, and although we have no way of knowing the short-term direction of the market, we are very confident in the long-term.
What may be surprising to you to know is that future returns from an all-time high in the stock market have statistically been better than investing on the average day over the past 30+ years. Keep in mind, that timeframe includes two historic market collapses and a few sizeable pullbacks as well.
This may seem counterintuitive, but it reiterates how long trends can persist to the upside for long stretches of time and also how short-term corrections are most often irrelevant to your long-term returns.
It can be tempting to want to wait for a market pullback for capital you wish to deploy; however, be mindful that in most cases a market correction will come along with pessimistic news, which may tempt you into waiting even longer to invest. If the market pulls back 10%, you can be sure there will be plenty of smart people predicting a further 10% pullback. That is what makes investing based on market timing decisions so difficult.
Also, buying a market dip can feel very rewarding if it works out. You may even remember the times you bought into a market correction, or the generational buying opportunities of buying at the bottom of a major market meltdown like 2008-2009. But do you remember the times you waited to buy and missed your opportunity? Will catching the additional 5-10% impact your long-term goals weighed against the potential opportunity cost of missing some of the upside?
Every investor has unique circumstances and objectives, but if you are investing capital into the stock market, you should have a longer time horizon to begin with. And if your time horizon is long, trying to time a short-term trend in the stock market is very difficult, and most often unnecessary. If you do feel uncomfortable, develop a plan that is systematic (like $$-cost averaging over a certain timeframe) and does not rely on instincts to execute.
Either way, investors should feel a bit more confident knowing that, on average, you would have done very well investing at an all-time-high over the last 30 years.
Jack Holmes, CFA®
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which Investment(s) may be appropriate for you, consult your financial advisor prior to investing. Information is based on sources believed to be reliable, however, their accuracy or completeness cannot be guaranteed. Statements of forecast and trends are for informational purposes and are not guaranteed to occur in the future. There is also no assurance that any investment strategy will assure success or protect against loss.