A reader recently emailed me asking when the market bottom would be so that he would know when to invest.
Market timing is impossible. Trying to pick the bottom while markets are at all-time highs is as easy as trying to convince the middle school bully to stop stuffing you in a locker by telling him that what he really wants is a hug from his father. It’s not going to end well.
Typically, when the bottom of the market arrives, most investors are too scared to invest, because it feels like the selling will never stop.
But it’s understandable why folks are hesitant to invest now, with the market at all-time highs. After all, the saying is, “Buy low, sell high.”
In reality, though, there’s nothing wrong with “Buy high, sell higher.”
And the odds of that happening are pretty good.
If you were to invest only on the days the market hit an all-time high, you’d do better than if you invested on all other days. Over three- and five-year periods, you’d earn nearly 2 percentage points more by investing at the highs.
All-time highs occur during bull markets, so it makes sense that stocks continue to rise after a new high. Bull markets don’t last indefinitely, of course, but they can last a while – often longer than anyone expects.
I’m not saying you should only buy on days when the market reaches a new all-time high. But you also shouldn’t avoid putting money to work just because the market is at a high.
Investors get in their own way too often.
Last week, I featured a chart that showed that over 30 years, the typical investor earned an average of 2.5% per year, despite the market returning an average of 11%. That’s because investors make emotional decisions. They’re scared to buy when the market is too high, so they wait for it to come down… but then they won’t buy when it’s down and they wait for it to rise significantly again.
You should invest when you have money to put to work or on a regular basis, such as quarterly or monthly. Do that religiously, and ignore whether the market is up, down, sideways, or at all-time highs.
Over the long term, if you buy the market no matter where it’s trading, you won’t go wrong.