Why invest at an all-time high?
At some point in your life, you will probably be investing when the market is at or near an all-time high. How can we avoid this? Why wouldn’t I just wait until the market drops and then put my money in? Seems pretty logical I must admit. These are questions I’ve heard in 2014, 2015, 2016, and 2017. Let’s look at history to see if we can gain some perspective and analyze some of the data.
To keep it simple when we say “The Market” this will be in reference to the DOW Jones Industrial Average (An unmanaged index of 30 large and influential public companies that are traded on either the NYSE or NASDAQ) since everyone is pretty familiar with that.
On December 1st 2014, the market finished the year closing at an (almost) all time high of 17,8231. The previous month was an all-time high for year of 17,8281.
On Dec 1st, 2015 the market actually finished down from the previous year at 17,4251. This would be the time to buy correct, the market is down! But wait, the next month it dropped 5.5%2! I’m an idiot! I should have waited 1 more month!
On Dec 1st, 2016 the market closed at you guessed it an ALL TIME HIGH of 19,7623. Under no circumstances should I invest now, right!
As of this writing on October 4th 2017, the Dow has now closed at 22,6614. We must be crazy to want to invest when it’s that high right?! I mean, that’s an ALL TIME HIGH!!
Look at the rate of return you would have potentially missed out on by this thinking:
- Dec 1st 2014 – present: 27%5
- Dec 1st 2015 – present: 30%6
- Dec 1st 2016 – present: 14.6%6
Pretty remarkable, right? The pundits have been saying for years now the market is going to crash or experience a correction.
Here are some figures that suggested a crash could happen:
- Ron Paul 2014, stocks are in a bubble and will crash
- Marc Faber 2014, 2014 crash will be worse than 1987’s
– Quick note: FYI Marc was dead wrong. the crash of ’87 was a decline of 22.6%.7
– He wrote that in April 2014 when the market was at 16,5808. The market finished the year at 17,8239. Does he still have a job?
- Kevin Freeman 2014: The Stock Market will crash and it will happen in minutes
- Forbes 2016: How to prepare for the coming stock market crash
- Jim Cramer (you know the annoying guy that yells at the TV) Jan 2017: Charts Reveal Trump’s Inauguration Could Trigger a Market Reversal)
Let’s take a step back and talk about your time horizon. Well if you are investing for money you’ll need in the 2-3 years yea you probably should not invest period, regardless if what the market is at. But if you are investing for your kids’ college or retirement that is 10, 20, maybe 30 years away why the heck do you care?
“Bu-, bu-, but Tanner again my return will be so much better if just wait until the market drops and then put my money in? It has to be any day now right. I mean we haven’t had a significant drop since the crash of 2008-2009.”
Here’s the problem, how do you know when is the right time to get out of the market and if you do how do you know when is the right time to get back in? I would be willing to bet there isn’t a single person who can with 100% confidence answer those two questions on a consistent basis.
Do you think the guy in his thirties back in 1987 when the market was at an ALL TIME HIGH now in 2017 as he is looking at his retirement account is saying, “Man I’m glad I didn’t invest my money back then when it was at an all-time high.” Any guesses at what the market was on Jan 1st 1987…….215810. Yes that’s right, 2158. Do you know what rate of return that is over the past 30 years? Yes you guessed it, 950%.
So what will the market be at 10, 20, 30 years from now? I don’t know, but if history is an indicator of future success, the market is likely to increase over time.
I think if we analyze why we say that, most of the time it comes down to our priorities are not in line. We haven’t started automatically saving 15-20% of our paycheck each month. We don’t know how much we are spending each month. We bought the house that is 2x the amount that’s appropriate for our income. We bought brand new cars when the older model was just as good and $10,000 cheaper. All of these little decisions we make with our finances add up to big changes over time.
Focus on the big wins when it comes to your finances and don’t get caught up in the minutiae.
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The DJIA is a widely followed measurement of the stock market. The average is comprised of 30 stocks that represent leading companies in major industries. These stocks, widely held by both individual and institutional investors, are considered to be all blue-chip companies. Please note an investor cannot directly invest in an index. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding any funds or stocks in particular, nor should it be construed as a recommendation to purchase or sell a security. Past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested.