Buy Low, Sell High? Here’s Why the Data Says Otherwise
Capital Investment Advisors
Helping Families Find Happiness in Retirement | Retirement Planning | Income-Oriented Investment Portfolios
It’s Fall y’all, and it’s the fourth quarter. We are less than forty days out from the U.S. Presidential election, and the market enters October after another strong quarter for the U.S. stock market. The Dow Jones Industrial Average increased over 8% in the third quarter, while the S&P 500 increased about 5.5% (price return only).?
The S&P 500 hit another all-time high this past week. In fact, this year alone, we have already seen over 40 new all-time highs for the S&P 500. We didn’t see any new all-time highs in 2023 and only saw one new all-time high back in 2022. This is good news for those invested in the stock market, but it's bringing in new fears for these same people. For some investors, it may feel like if the market is at an all-time high then how can it go any higher. For other investors, they think they should follow the age old investment advice of buy low, sell high. ? ?
As investors, we face a psychological barrier to investing when things have already done great, and it makes us wonder if it's a good time to invest or keep investing.? We think it's natural to feel hesitant about putting new money into the market when prices are at a peak, but the data is very interesting when it comes to how markets have historically performed after hitting an all-time high. J.P. Morgan Asset Management released a study that collected data going back to 1988 that showed how the S&P 500 performed during different time periods when investing at a new all-time high and investing on any day (** invest on any day represents average of forward returns for the entire time period).
The data is quite interesting. Take a look at the three-year average forward return during this set of years. If you had just invested on any day in this time period, the three-year cumulative forward return averages 40.2%. However, if you had invested at a new high, the forward return would have risen substantially to 48.1%. We feel this is a compelling illustration for our readers, and provides some context when people ask what to do with their investments at all-time highs.
Bottom Line
Of course, the future is uncertain. It’s always uncertain, particularly in the short run, but history shows that stocks and markets generally rise over the long term. Reaching new highs is common (more than we even think) and doesn't (at least historically) indicate that returns will be less moving forward or necessarily spell an upcoming correction. In fact, all-time highs in the market might suggest that more growth is on the horizon.
- Retire Sooner Team at Capital Investment Advisors
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Savings Alone Won't Cut It: Why You Need to Be a Tomorrow Investor
Adequate savings are the cornerstone of a happy, sustainable retirement. According to What the Happiest Retirees Know, the happiest retirees average $1.25 million in liquid retirement savings. While saving is essential, relying solely on savings without investing can be a costly mistake that impacts your future wealth.?
Why Savings Alone Isn't Enough
Many Americans struggle to save, with nearly 70% of those aged 65-69 having less than $100,000 saved. Even when savings accumulate, people often feel a need to protect it at all costs, especially with alarming news headlines. However, this “play it safe” mentality can hinder wealth growth. Traditional savings accounts and money market funds generally don’t keep up with inflation, leaving retirees with less purchasing power over time.?
The Power of Investing
Let’s compare two approaches. Jack saves $1,000 a month for 32 years, putting all his money in a savings account with a 1% return. After 32 years, he ends up with around $451,000. Jill, on the other hand, saves the same amount but invests in a diversified stock-based index fund. With a historical return of around 10% per year, Jill’s investments grow to over $2.4 million by the same period.
The Key Takeaway
Investing, especially in the long term, can provide substantial returns that outpace inflation. While Jack and Jill both worked hard, Jill’s decision to invest made all the difference. The lesson? Saving is critical, but to truly secure your future, you must invest for tomorrow. By combining saving with investing, you can build a stronger financial foundation and be better prepared for a happy retirement.
A Quick Reminder
This is provided as a resource for informational purposes and is not to be viewed as investment advice or recommendations. This information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. The mention of any company is provided to you for informational purposes and as an example only and is not to be considered investment advice or recommendation or an endorsement of any particular company. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal. There is no guarantee offered that investment return, yield, or performance will be achieved. The information provided is strictly an opinion and for informational purposes only and it is not known whether the strategies will be successful. There are many aspects and criteria that must be examined and considered before investing. This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax, or investment adviser before making any investment/tax/estate/financial planning considerations or decisions. Investment decisions should not be made solely based on information contained herein.