• More Than Baseball

How to Invest Your Money with the Market at All-Time Highs:

Updated: Jan 20

Written by Jonathan Perrin

Volunteer Director of Financial Education, More Than Baseball

With markets currently sitting near all-time highs one of the most common questions I get as an advisor these days “is it a good idea to invest my money into the market right now, or should I wait to buy on a dip?” Whether this is from clients that have come into a significant amount of cash, or a new investor who is looking to get into the market for the first time; putting a lump-sum into the market at one time can be scary and requires a well thought out plan to execute and stick to. For an investor in this situation there are three options for how they can choose to invest their money: investing the lump sum immediately, trying to buy the dip, or dollar-cost averaging into the market.

One of the most popularized investment strategies that has come from social media in recent years is to simply “buy the dip” anytime a stock or the overall market comes off its highs. While this may sound like a good idea, it is problematic for two reasons. First, buying the dip is a form of market timing where you try to predict how the market will move in the future, and then make buying and selling decisions based on your predictions. Timing the market can be difficult, risky, and just flat out doesn’t work for the majority of investors, including professional money managers.

On average, just 37% of actively managed stock funds outperformed the index each year from 2004-2018. The second problem is that you could be sitting with funds uninvested in cash for long periods of time, and thus missing out on gains as the market continues making new highs. The stock market has multiple different periods where it has gone months, even years without a decline of 10% or more. The decade of 2010-2019 had four separate years where the S&P 500 did not have a decline of more than 10%.

The following chart shows the average annualized returns of the S&P 500 from 1926–2019. After the index has hit all-time highs versus waiting to invest after the market has declined by more than 10%. Overall, the data does not support that recent market performance should influence the timing of investing in stocks.

Both theory and data suggest that lump-sum investing is the more efficient approach to building wealth over time. However, investors are not robots, they are human beings who have emotions and are legitimately concerned over the fear of losing money. This is where dollar-cost averaging comes into play. Dollar-cost averaging is an investment strategy where an investor breaks up that lump sum of cash and invests it systematically on a set schedule over a period of time. The purchases occur regardless of the asset's price and at regular intervals; taking out the guesswork that goes into attempting to time the market.

This is the most reasonable strategy for investors who might otherwise decide to stay out of the market altogether due to fears of a large downturn after investing a lump sum. The most important thing is that you start putting your money to work. The biggest ally that you have when making investments is time. The more time you give your money to compound on itself, the better off you will be. Getting capital into stocks, whether gradually or all at once, puts the holder in position to reap the potential benefits of compound interest. A trusted financial advisor can help investors decide which approach—lump-sum investing or dollar-cost averaging—is better for them. What is clear is that markets have rewarded investors over time. Whichever method one pursues, the goal is the same: developing a plan and sticking with it.


Cómo invertir su dinero con el mercado en máximos históricos?

Con los mercados actualmente cerca de máximos históricos, una de las preguntas más comunes que recibo como asesor en estos días "¿es una buena idea invertir mi dinero en el mercado ahora mismo, o debo esperar para comprar en una caída?" Si se trata de clientes que han obtenido una cantidad significativa de efectivo o de un nuevo inversor que está buscando ingresar al mercado por primera vez; poner una suma global en el mercado a la vez puede dar miedo y requiere un plan bien pensado para ejecutar y cumplir. Para un inversionista en esta situación, hay tres opciones sobre cómo puede elegir invertir su dinero: invertir la suma global de inmediato, tratar de comprar la caída o promediar el costo en dólares en el mercado.

Una de las estrategias de inversión más popularizadas que han surgido de las redes sociales en los últimos años es simplemente "comprar la caída" cada vez que una acción o el mercado en general sale de sus máximos. Si bien esto puede parecer una buena idea, es problemático por dos razones. Primero, comprar la caída es una forma de sincronización del mercado en la que intenta predecir cómo se moverá el mercado en el futuro y luego tomar decisiones de compra y venta basadas en sus predicciones. La sincronización del mercado puede ser difícil, arriesgada y, simplemente, no funciona para la mayoría de los inversores, incluidos los administradores de dinero profesionales.

En promedio, solo el 37% de los fondos de acciones administrados activamente superaron al índice cada año entre 2004 y 2018. El segundo problema es que podría estar sentado con fondos no invertidos en efectivo durante largos períodos de tiempo y, por lo tanto, perder ganancias a medida que el mercado continúa alcanzando nuevos máximos. El mercado de valores tiene múltiples períodos diferentes en los que ha pasado meses, incluso años, sin una caída del 10% o más. La década de 2010-2019 tuvo cuatro años separados en los que el S&P 500 no tuvo una caída de más del 10%.

El siguiente cuadro muestra los rendimientos promedio anualizados del S&P 500 de 1926 a 2019. Después de que el índice haya alcanzado máximos históricos en lugar de esperar a invertir después de que el mercado haya caído más del 10%. En general, los datos no respaldan que el desempeño reciente del mercado deba influir en el momento de invertir en acciones.