A story from a member of our team:
I was talking to a young man at an event recently. He knew I was with Asset Strategies, and that as financial advisors, part of what we do is help our clients with investing.
He was very engaged and interested in investing himself. But he was also extremely confident that he would not invest in today’s market.
I asked him why.
With conviction, he explained how overvalued he thought the market was. And he had plenty of talking points to back up the assertion, pulled straight from the financial news.
He was also concerned about the national debt, and our ability to repay it.
And “with the market near all-time highs,” he wasn’t keen on putting money in.
We talked a little further, mostly me asking more questions and him eagerly providing market commentary.
Afterwards, I talked to one of our advisors, who was there as well.
We agreed: this young man was making a dangerous assumption about investing.
In short, he was assuming he could predict that the market would go down soon, so it would be better to wait to invest.
People make this assumption when the market goes up. It’s been going higher, they see, and so they assume it will go down.
They also make this assumption when the market goes down. It’s been going down, they see, and it will probably go down further.
Will the market go down? Sure!
Will it also go up? Absolutely!
When? Nobody knows.
Time and time again, investors who believe they know what the market will do have their assumptions proven wrong.
They sit on the sidelines through ups and downs, and often finally feel so much regret based on missed opportunities that they make expensive mistakes when they finally do invest.
The market is irrationally high, yet it climbs the wall of worry higher. Or the market seems like it will just keep falling, only to miraculously recover.
And the opposite of each is true, too. The market seems like it will just keep climbing, only to crash. Or the market has fallen to irrational lows, yet it goes even lower.
Many people who try to time their investments based on these movements get it disastrously wrong.
There are people who get better at trading the market, based on assumptions of where prices may go. They are few and far between, and we are statistically unlikely to join their ranks.
And so as a general rule…
We want to invest early and often, and stay invested as long as possible.
“Time in the market beats timing the market,” as they say.
Simply investing consistently in a diversified portfolio is far more important — from our perspective — than worrying about getting the best price when buying and selling those investments.
Will our portfolio values go up and down with the market’s volatility? Sure!
Will there be times when we buy at all-time highs only to miss an opportunity to buy lower later? Yes.
Will we also (by sheer dumb luck) occasionally manage to buy on days where the market climbs higher, and never sees that price again? Historically, that happens!
According to an analysis published by JP Morgan, “Since 1950, the S&P 500 has achieved an all-time high on roughly 7% of trading days, and of these highs almost a third became new market ‘floors’ — levels from which investors never get a ‘second bite of the apple.’”
What does that mean? Even when you’re investing at all-time highs, about 1/3 of the time, it’s still the lowest price you’ll get going forward.
But again, none of this should matter.
What matters is simply creating the plan for how you’ll keep investing, and following that plan regardless of market outlook.
And in general, avoiding that dangerous assumption that you know what the market will do tomorrow.
This article was written for financial advisory clients of Asset Strategies. If you’re not yet a client and you’d like to connect with an advisor and see how they may be able to help you work towards your goals, request a Welcome Call here.
