Invest High or Low?
It’s not unusual for clients, prospects, and friends to ask me if they should stop investing for a while and just save money for a car or some other future expense so they can pay cash. This is a more common question when markets are at historic highs like right now.
My answer usually is “one person’s too high is another person’s opportunity”. Actually, that’s what makes a market – buyers, and sellers with different goals, experiences, and strategies. You might conclude that’s where we are today. Hey folks, we’re always there.
No one, and I repeat, no one can time the market, including Warren Buffet. Earlier this year it looked like his performance was just average. A few months later he’s back in the genius category. What a little time will do to performance numbers and public opinion. WB is well known for his popular quote, “Be fearful when others are greedy, and greedy when others are fearful”. Are investors greedy or fearful right now? I can’t make that determination, you decide.
My former boss, billionaire money manager Ken Fisher, reminded us that the stock market climbs a “wall of worry”. Seems to me we’re in that kind of time period now. Who would have thought the market would have soared to such heights during a business shutdown, slow recovery, and then more virus cases and deaths this fall? Not me.
Now I did change my asset allocation this year as retirement is less than two years away. I’m a 50/50 (stocks to fixed income) guy building cash for three years of withdrawals so I don’t need to rely on the stock or bond markets. I still invest every month into a balanced index fund. My boss, Anna, in her mid-30’s remains at 90/10 and puts money into the market each month. She’s playing the long game and most readers, unless you are close to retirement, should be playing the long game too.
Should you stop contributing to your investment accounts, both taxable and retirement when the market is so high? No is my answer and research reports continue to demonstrate that this the most successful strategy. Saving for short term goals is important too so I usually I couch my opinion by saying that low-cost financing and astute buying can allow you to continue investing in securities for funding your long-term goals, usually college and retirement for family people and retirement for the childless couples and singles.
Don’t forget to read or reread, “Winning the Loser’s Game” by Charles Ellis and “The Behavioral Investor” by Daniel Crosby. It will help you to deal with this question of investing high or low.