A Tale of 66 Record Highs
Good news for you all, I don’t actually plan to list 66 reasons to read this blog, or will I? Ok, seriously what am I referring to you might be wondering? The stock market of course, duh. Did you know in what seems to be a ho-hum year in the stock market has produced, as of writing this, 66 record highs? Let me repeat that, in 2021 the S&P 500 has closed at a record high 66 times!
Now, I am a big fan of messing with people’s emotions, as I think it can serve as a social experiment and learning lesson for us all. That said this is going to require some introspective and some real honesty. Ready?
A Hypothetical Stock Scenario
Alright, when I say to you Mr. & Mrs. reader this next statement, I want you to answer it truthfully. I give you $100,000 tomorrow (one of the benefits of reading this blog ha) and tell you two things;
1. You must invest it in the stock market.
2. You have 2 years to invest in it.
Now after all the info, and money I gave you, the question is this…. Will you invest the money tomorrow or wait for a correction? Answer honestly now.
Here is what I know, I meet with a lot of people throughout the year and am faced with this very question. They have cash build-up, or a big bonus come in and are struggling with what to do. On one hand, they feel leaving it in cash is a bad decision, as it is earning nothing. On the other hand, doesn’t it make more sense to wait for a correction to buy on the dip?
Now, I am not going to sit here and say there is really a wrong answer. But, I will sit here and tell you my thoughts on the topic manner from my unique perspective. You see there are two things going on in most people’s minds. First, isn’t it crazy to invest in the stock market when it is at all-time highs? I mean it can’t keep going up and there are always corrections. Second, if I just wait until the dip I’ll be buying at a discount.
Let’s pick apart these two very logical thoughts.
Investing at all-time highs.
I know it seems crazy and counterintuitive to some degree. If we know one thing about the stock market it is to buy low, sell high. However, let’s really think this through. Let us take 2021 as a great example. If you at the beginning of the year got your bonus you’d be looking at a stock market that was at an “all-time high”. If you went with this mentality you’d also have sat here witnessing the stock market repeatedly (66 times) close at record levels. Your money sat in cash, earning virtually nothing, while everyone else experienced positive returns in the markets.
Even worse what do you do now with these funds? Invest them now at a very new all-time high? Or wait for a correction of, I don’t know 20%, which may or may not happen? The plot thickens you see as now you are really stuck between a rock and a hard place. What I think most people lose sight of is – the longer back you look the reality is the stock market continually goes up over time, as companies are forever growing.
As a matter of fact, as of writing this, the S&P 500 is at 4678 (near a record high). Do you want to know what it was back in the Stone Age (5-years ago)? Take a guess. What was your guess, go ahead say it out loud? If you guessed 5-years ago the stock market was at 2236 give yourself a big pat on the back. You see we know the stock market goes up over time, as it is the very nature of its being. However, we refuse to believe it when we are at all-time highs. I am here to tell you to stop this irrational fear and let the markets do what they do.
Wait for the dip, there is always a dip.
I can see 50% of you don’t agree with me and are rolling your eyes. Or do agree with me and are telling yourselves, yeah but I’ll just await the dip then enter the markets. Ok, I’ll bite, yes there are usually dips in the market. Here is the issue though, and what I have seen over 20 years in the business. For starters, this whole strategy suggests there will be a correction greater than the appreciation in the markets. For instance, back to my original example, if this was your thought process this year, you’d be holding your breath waiting for a 20%ish correction to enter the markets essentially where you were unwilling to enter the markets 11 months ago. Crazy when you put it in that perspective right?
Not only that you’ll have to do what is nearly impossible, put your faith in the markets when it is testing you the most. If we look at 2020 as an example similar thing happened where we kept hitting all-time highs. The exception was there was a little 30% dip in March due to Covid. Now this individual would have decided to not invest in January as we were near all-time highs. Then when the sky was falling in March decided to time the market right and go all in at a time of extreme uncertainty. There was uncertainty in the markets, the world, your job, and the list goes on. I can tell you most people weren’t going all-in then and rather waited it out until, you guessed it, it was too late.
I know some of this is counterintuitive and I know not everyone will agree with me, but I am simply suggesting do as I do (and as I say). I take my annual bonus and 100% of the time simply throw it into the markets at whatever level it is. My logic – it goes up more than it goes down, and I am far from smart enough to know when and by how much it will go down. Instead, I implore you all to not overthink it and instead sock money away into one of the greatest wealth creation vehicles on the planet.
As always stay wealthy, healthy, and happy. Happy Holidays everyone.
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