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Is it wise to begin investing when stocks are at an all-time high?

By Andrew Hallam - May 08, 2024

Is it wise to begin investing when stocks are at an all-time high?

Is your heart beating like a bongo at the thought of investing?

With stocks near an all-time high, you might fear being the patsy at the poker table. If you invest at the wrong time, your hard-earned money could swirl down the drain or languish for years while you grow more wrinkled.

If that’s your fear, I can help.

After all, I’ve added plenty of money to the markets over the past 35 years.

And most of the time, stocks were at or near all-time highs.

So why listen to me? Truth be told, I’ve done quite well.

I was a schoolteacher.

And as much as I would love to see every educator earning $100,000 a year, they don’t make that much. I never did. Yet, I built a million dollar portfolio by the time I was 37.

Today, at 53, I have several million dollars.

What’s my secret? It’s simplicity itself.

I own a diversified portfolio of index funds. And whenever I have money, I invest it right away.

Sure, you could wait for stocks to drop before investing. And you might get lucky. But far more often, you’ll be standing on a dock while your boat sails away.

I began investing in 1989.

Stocks were at an all-time high.

But I added money every month.

Stocks hit another all-time high in 1992 and in 1993. In fact, stocks hit new elevations during 23 of my 35 years as an investor.

You might think I added just small, monthly sums. But that wasn’t always the case.

Four years after acquiring my first million dollars, I wrote my first book (Millionaire Teacher, in 2011). In the years that followed, I wrote a few others.

Most of the time, I received cash advances from the publisher. That money typically arrived during years when stocks were at all-time highs. But I invested every penny as soon as I received it.

I sold an ocean front property several years ago and added that windfall to my portfolio. You guessed it. That year, stocks were at an all-time high.

You might think this sounds foolish. But if you ignore market levels, and invest as soon as you have the money, you’ll perform better in the markets, long-term, than almost everyone you know.

That’s because humans think too much.

We’re deluded into thinking that we can game the markets.

But we can’t…because markets move up far more often than they don’t.

Years U.S. stocks (with dividends reinvested) hit all-time highs

1970 1980 1986 1992 1997 2012 2017 2024
1971 1982 1987 1993 1998 2013 2019  
1972 1983 1988 1994 1999 2014 2020  
1976 1984 1989 1995 2006 2015 2021  
1979 1985 1991 1996 2007 2016 2023  


Source: NYU Stern School of Business and portfoliovisualizer.com

Now, how about the speculator who lurks within us all?

You might wonder what would happen if you sold your portfolio every time stocks hit a new high, and then waited to invest the proceeds until you believe it’s a better time.

Duncan Lamont, the Head of Strategic Research at Schroders shows how foolish this would be.

Assume $100 was invested in a US stock index in January 1926. If it were left to grow, it would have an inflation-adjusted buying power exceeding $85,000 at the beginning of 2024.

Now assume a hypothetical investor sold every time stocks hit a new, high level. They kept the money in cash for at least a month, and then re-entered the market when stocks were no longer at an all-time high.

Our prehistoric brains might dance at the sound of this. But if someone used this strategy from 1926 to 2024, they wouldn’t have turned $100 into an inflation-adjusted $85,000. Instead, their money would have limped to $8,790.

That’s 90 percent less!

How is this possible?

On too many occasions, something like this would happen:

Consider a hypothetical marble.

You paid $1. Then the marble’s price hits $2 the following month. Marbles never cost that much before. So, you sell your marble for $2, and decide to buy back during a month when it’s not priced at an all-time high.

The following month, it hits $3, then $4. A month after that, it drops back to $3. At $3, it’s no longer an all-time high, so you buy it back for $3.

We love the idea of buying low and selling high. But far too often, that plan backfires.

Trying to gain an edge by selling during market highs (or ceasing to add money during all-time highs) is like gambling that the world’s 200th ranked player will win Wimbledon this year.

Impossible? No.

But it isn’t probable.

That’s because markets usually keep rising after hitting all-time highs.

Once again, consider Duncan Lamont’s market measurements from 1926-2024.

On average, stocks beat inflation by 10.3 percent, 12 months after hitting an all-time high.

After 24 months, they beat inflation by an average of 17 percent.

After 36 months, they beat inflation by 25 percent.

Historically, not investing during all-time highs is like hitting your shin with a racket.

I invest money as soon as I have it. I don’t pay attention to when stocks rise or fall. That’s just noise.

My lifetime income has been modest, but my portfolio, far less so.

You likely earn more than me. That means, with equal discipline, you could build much more wealth than me, using the power of compound interest.

Perhaps the late Nobel Prize winner in Economics, Daniel Kahneman said it best:

"The opposite of noise is discipline."

And that discipline could be yours.

 Andrew Hallam is the best-selling author of Millionaire Expat (3rd edition)Balance, and Millionaire Teacher.