How to Invest When the Market is at All-time Highs

By Geoff Schaefer

Geoff is a Wealth Advisor with Intergy Private Wealth. He writes for The Steadfast Fiduciary to help people live with an abundant heart, open mind, and boundless generosity.

April 4, 2024

Have you ever wanted to invest, but stopped short by asking yourself this question?

“The market is pretty rough right now, maybe I should wait until it recovers before investing.”

Then you wait… and you end up asking the following question:

“The market is at all time highs, why don’t I wait for a pull back before I invest more money?”

Human behavior is a funny thing.  In the face of decades of precedence and data, we convince ourselves that this time is different. As long-term investors, we know we should invest, but given the market’s current state, we convince ourselves we know better. This conundrum has existed since the inception of the stock market. I won’t go down the path of convincing you that market timing is futile (there are a lot of resources out there to support this), rather offer some ideas on how to invest when you feel like the market is just too hot. You’ve determined these are investable dollars and you’ve settled on an allocation to invest in that aligns your capital with your goals and values, now you just must do it.

Three ideas to invest when the market is at all-time highs:

  1. Dollar Cost Average.  This means dividing a large investment into small chunks and committing to investing that among over set internals of time.  Perhaps you just sold a business or piece of real estate and are sitting on a large amount of cash.  You know you should reinvest but are hesitant.  This strategy can allow you to commit to investing while not committing to the exact entry point.  There have been a lot of studies on this and usually this does not equate into better investment performance (because the market tends to trend up more often than it trends down), but it does allow for a behavioral control that supports action.  That is ultimately far more important. Optimized strategies not supported by practical behaviors usually turn out far from optimal. If putting a lot of money into the market at once is causing inaction, commit to splitting it into smaller amounts over time.
  2. Stop Following the Markets Daily.  Short term market swings are very normal, but they can happen fast and trigger unwanted stress and emotion. Since 1980, a drop of 5% or more has occurred in the US stock market 4.5 times a year. If you are stressed or anxious yet you understand market swings are inevitable and actually expected, then following the day-to-day performance of an investment is counterproductive.  It is an action that provides no upside whatsoever (your attention in the short term does not change the direction an investment moves), but a spiraling black hole of downside through worry and doubt. For more on the media and your financial plan, click here.
  3. Diversify. Is your worry about a specific asset class the last barrier? Real estate and interest rates or maybe large cap growth stocks and high valuations. These concerns can be legitimate, but we mustn’t let them be crippling.  The best way through this is to spread your investments out. The old adage from Don Quixote, “Don’t put all your eggs in one basket.” Following the prior example of real estate and large cap growth stocks, buy those, and then buy something else too.  Add international stocks, small company stocks, treasury bills, and corporate bonds.  Your best- and worst-case scenarios about all these investments matter a bit less when they are viewed as a collective. If becoming slightly more conservative than your optimal allocation allows you to invest and feel better about it, it may be a worthwhile tradeoff. Action > Inaction For more on diversification read this.

On a spreadsheet or Monte Carlo scenario you could likely find some of these ideas inefficient.  However, the goal of financial planning is to allow humans to align their capital with their values.  Humans that have feelings, that have fears. Humans that are not spreadsheets. General George S. Patton is quoted as saying, “I would rather have a good plan executed today than a perfect plan executed someday.”  Sometimes optimal removes the ability for practical.  As an advisor and planner, it is my job to walk with clients as we balance what the math says with what we can effectively execute day in and day out. Stock market highs are exciting for many, and scary for others. It represents uncharted territory and something new.  History and math can get us so far in taking action during a high stock market, but we can’t get over the hump of committing to invest, what good are all the stats. The reality of planning lies in a harmonious middle ground where optimized models meet humanity. For many the choice for investing in the market at an all-time high is not optimal or suboptimal, but action vs inaction.  Plan in a way that allows you to take the first step. Nick Murray wrote, “If you think the market is ‘too high’, wait ’til you see it 20 years from now.”

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