Investing | Article
The Market is At a High: Is It Time For Me To Invest?
by Nicole | 8 Jul 2021 | 6 mins read
It’s been a great year for stock markets around the world, with most of them on the up and up, pricewise.
People who are already invested might be tempted to sell what stocks they have, earn a tidy profit, and wait for the next drop to buy again. Meanwhile, investors sitting on a pile of cash might feel more inclined to sit on the sidelines when the stock market is high, waiting to time the market and only invest when the prices go down again.
But is this really the right investing approach for everyday people like you and I who don’t have time or energy to monitor the markets daily? And what should an investor do when the markets just keep going up?
Stick to your plan if you’re investing for the long-term
Most of us invest to grow our retirement pot or achieve financial freedom. Often these goals are long term with at least a 20-year time horizon.
And yes, we get it — it sure is tempting to take our gains off the table or stop our regular investing plan when we’re bombarded with headlines about imminent market corrections or bubbles bursting. Who wouldn’t want to keep their hard-earned profits and quit while they’re ahead?
Giving in to that temptation, though, will hinder us from reaching our long-term financial goals.
According to BlackRock, if you only invested for a month, you have a 37.5% chance of losing money and only a 62.5% chance of making money. But if you stay invested for 10 years, your chances of earning a negative return goes down to 5.2%, which also means that you have a 94.8% chance of earning positive returns.
In other words, if you tune out the short-term noise and keep your money invested longer, you’ll increase your chances of earning positive returns. Put differently, the risk of losing your money goes down the longer you stay invested.
Sure, the stock market is volatile in the short term. It can crash in a single day and shoot up again the next. However, as a long-term investor, your plans shouldn’t change just because the market is high.
And if you passively invest in the broad markets through exchange-traded funds (ETFs) to grow your money and continue staying the course, your investments may fare better in the long term.
Haven’t started investing yet? Don’t try to time the market
You’ve probably heard the age-old investing adage “buy low, sell high”. While it makes sense to wait until the stock market drops before buying into it, even the most seasoned investors aren’t able to buy into the market at the lowest price, all the time — what more the rest of us?
There’s just no telling for sure when the markets will dip, after all. Just because the markets set new highs doesn’t mean that a market correction will happen soon — unless you can predict the future. And if you or anyone can, we’ll like to be in on it too.
And even when the market does go down, it would be just as difficult for us to convince ourselves to “buy the dip” when prices keep falling, because then we’ll tell ourselves that the price will continue to drop. The next thing you know, the prices would be on the rise again and we’ll still remain uninvested in the market.
It goes without saying, but we’ll say it anyway: the stock market waits for no one. So, don’t hold on to too much cash waiting for a dip or risk losing out on the opportunity to earn a return that beats inflation.
And there’s historical evidence that investing at all-time highs doesn’t actually hurt your returns. JP Morgan found that if you invested on days when the S&P 500 closed at an all-time high, your investments had an 88% chance of earning an average return of 14.6%. That’s not shabby at all.
The numbers don’t lie. So why wait? Make your money work harder for you, starting today, that is if you already have your financial foundation in place.
Always prepare for the unexpected
Before diving headfirst into the stock market, you should make sure that your financial foundation is strong and steady.
For one, you don’t want to put money that you actually need for your living expenses into the stock market. Only invest money that you can afford to lose in the short term. Figure out “what you can afford to lose” by asking yourself these questions:
- Do I need this money to pay for my immediate expenses or expenses that I’ll incur in the next 1 to 2 years?
- If I lose my job or have an emergency that requires money, do I have enough saved up to tide me over?
Having enough short-term savings and emergency funds gives you the freedom to stay invested in the stock market for the long term, whether the market goes up or down.
And, if you stick it out for the long term and invest regularly (in small amounts, or whatever you can afford), then you don’t need to think about when to enter the market. You can dollar-cost average into the stock market by investing a fixed sum every month, instead of putting all your money into the market in one go.
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