Buy when the market is high.
An interesting study from UBS shows that instead of waiting until the market bottoms to invest you should invest at market highs.
You can see the study here.
Now, be advised, they are not actually saying you “should buy at market highs,” they’re just showing that if you did that you would have outperformed someone who bought in randomly.
There is a lot to unpack here, actually, that I want to discuss.
First and foremost, I’ve never understood those who say they’re waiting until the next drop to go “all-in” to the market. That inherently means you have cash on the side because you can’t go “all-in” at a later date if you are all-in today. Those folks are keeping money on the side in order to buy in at market bottoms.
If this is you, how much cash do you have on the sidelines today and how long has it been there? Since 2010? 2015? How much upside have you missed by being in cash so you could go “all in” when the market fell?
How Much Does The Market Need To Fall?
Secondly, what exactly is a market fall? 5%? 25%? Does that include dividends, etc.? What is your strategy before you put your cash back in?
Now, some use daily moving averages or some other technical approach. All that stuff bores me, frankly. And the reason is because exactly what UBS found, buying at market highs beat random purchases, historically. And as much as some don’t want to hear it using YOUR chosen method of market timing is actually random investing because no one knows what the true bottom is until many days after it occurred.
When IS The Bottom?
Is today the bottom? The top? We have no idea. It could be the bottom if the S&P 500 never drops below 2919 again, which was the closing yesterday.
But it could also be the top if the S&P 500 never breaks 2919 again.
And this is what gets to the most important point I want to make; Where will the market be 5 years from now?
It’s at 2919 now. In five years will the S&P 500 be lower than that or higher? It’s a very simple question to answer. Of course, it’s impossible to know, your guess is as good as mine. But when it comes to investing strategy, literally nothing else matters. Where do you think the S&P 500 will be in five years? Answer that one question and you have your investment strategy.
If you think the S&P 500 will be higher then be “all-in”. If you think it will be lower then don’t be. Really can’t be any simpler than that.
Easiest Investing Strategy…EVER!
Now, some will try to make this harder than it needs to be. “Josh, don’t you know that in any given 5 year period there was X% of the time the S&P 500 was down?”
Yup. And I literally don’t care. Any X% of time didn’t include things like the internet, stocks like Amazon or companies with extracting techniques called hydraulic fracturing. The market changes. To base your investments on historical data that literally has nothing to do with where we are today is, in my opinion, silly.
Just ask yourself, “where will we be in the future?” Answer honestly. If the answer is better than today, then invest. If not, don’t. Why make this more difficult than it needs to be?
If you truly think we’re going to be worse off 5 years from now but think you have to invest anyway because of market history or whatever, why put yourself through that? The next market drop will bring you chaos. You’ll say “I knew it! I should have stayed out of the market!”
Don’t Let Politics Be Your Investing Guide
And, even worse, the higher the market goes the more convinced you’ll be that doomsday is ever closer. Especially if you let politics determine your investing style. Don’t like Trump? Every Trump tweet will put you on edge.
Don’t like the left? Bernie Sanders saying he’s going to jail fossil fuel executives will certainly cause you some panic.
And yet, we have survived, and actually thrived, under politics of the right and left for over 100 hundred years. Will it continue? Who knows?
I believe so. And as such, Im 100% invested, regardless of where the market is today. Come hell or high water I’m riding the ship called the USS America. If it goes down, do you believe it will only be the stock market that sinks and everything else will be safely secured on lifeboats?
I don’t. So, may as well settle in and enjoy the ride. It’s America or bust for me and my investing dollars.