The market is at an all-time high, you have $100,000 to invest, what do you do? Invest now, or wait?
I faced this very situation not too long ago: Invest now or wait. $100,000 is a lot of money. I worked very hard to build that nest egg. For a long time, it was growing inside my former employer’s pension plan. When I finally realized that I didn’t want to wait until I’m 65 to enjoy freedom, I quit my job and asked for my pension check!
The exact sum was $108,362.19. This was the largest sum of money I had ever held in my hand. It was cold hard cash ready to invest. But WAIT! The market was at an all-time high, was I really going to invest????
A sound piece of advice is to protect your money; one point in the wait column
When I discussed this topic on my blog, many of you answered back. A recurrent suggestion on this blog was to “protect my money”. There were several ways offered by fellow investors:
- Use stop-loss in the event of a market correction
- Invest systematically over a year
- Look for undervalued stocks (is there such thing?)
But my favorite was definitely this one:
“Staying in cash for a bit longer.” I just wondered: “how long is a “bit longer””. I wish I could have had a coffee with Jesse every month or two. I wonder if he would have then told me to wait to see how the Brexit would settle, or to see if the NAFTA will be signed or wait to know what will happen with the next FED’s decision about interest rates…
When fear is the driver
Let me be clear: I’m not making fun of Jesse here and I don’t think I’m smarter or a better investor than him. His concerns about the potential impact of the tax reform were well founded and made sense. Someone could bring the end of the current trade war between China and the U.S. as the next entry point to investment. Others would elaborate to tell you how this market is complete nonsense and the only way to make real money is to wait for the next crash.
I’m not going to debate whether it’s a good strategy or not, but let’s all keep in mind that a year like 2008 doesn’t happen often. In fact, it has only happened three times (including 2008) in the past 100 years:
If you are a fan of graphs and tendencies, you could argue that two major drops happened in the same decade, so it should happen anytime now. Or… you could also argue that last year was similar to 1990 which was followed by nearly another decade of bullish years.
This is what happens when fear is the driver: any sources of concerns or challenges in the market will become the next reason for the market crash.
Fear will tell you to wait
That’s a primitive instinct. It goes back to the time we were hiding in a cave and had to wait until it was clear to go outside. We soon realized there were always threats outside of the cave, but we had to get out if we wanted to eat and survive. At one point, we had to deal with threats coming from predators, bad weather or another tribe hunting us down. We had to go out to survive. At that point, there was no “going outside for 5 minutes and coming back”. That waiting game would have made the human race extinct fairly quickly.
So it’s only normal to fear the market will crash, especially when you have a lump sum of money to invest. The last thing we all want is to see our $100K going down to $75K before the end of the year. The thought of losing $25K+ gives us shivers. Therefore, we find all kind of ways to minimize that thought to a maximum up to a point that we may not even invest that money. Better to keep that $100K than seeing it crushed by some evil financial forces!
Instead of giving in to fear, I found a quiet place and started to think about my investment plan.
Why I ignored my fears (here’s my trick)
When you dig deep inside, you will find that fear comes from the unknown. Our brain is giving us (making them up) answers to questions or challenges we face. Some of those answers are built on possible outcomes. I don’t know why, but it seems our brain keeps bringing the worst outcome possible to the forefront of our minds!
The best method I found to dissipate my fears is quite simple, but also quite difficult. It is called playing the long game.
I have no control on what is going to happen on the markets today, tomorrow or in three months. So why bother trying to figure what will or won’t happen? I know what is going to happen on the markets in 15, 20, or 30 years from now: stocks will worth more.
Once I’ve worked enough on my mindset to be convinced of this premise, I don’t mind seeing my 100K going to down to 75K by the end of the year. It won’t matter in 15 years.
I invested all my money quickly and then I waited
By the end of the month of September (2017), most of my money was already at work. My plan was well defined before I receive my check and all I had to do was to pull the trigger and buy those amazing companies. It was exciting and frightening at the same time. While I knew deep down I was doing the right thing, there was still a small voice telling me I could be pretty much killing my whole retirement plan by investing so “recklessly”. After all, I would not have felt very good losing 20-30K by December.
I had a very solid plan to build my portfolio. I had spent years on working on my investing process and determining how to buy stocks. I followed this plan and made sure I was buying companies meeting my investing criterion. You guessed it; valuation wasn’t a big part of my plan.
My money was fully invested in equities when I faced the 2018 market drop. The S&P 500 dropped by almost 20% from its peak level that year. The Canadian market wasn’t too far behind. What happened to my portfolio? Not much. I finished the year at +5.5% as I was patiently waiting.
Hmm… I guess the waiting game could be a winning game after all! The key is to invest first and then wait.
The results 2 years later
If you have followed my blog for a while, you know that I’m reporting my dividend income and portfolio value on a monthly basis (you can sign-up to my newsletter to make sure you don’t miss one of my trades).
At the time of writing this article, 23 months have passed since I invested my money. In the past 2 years, a lot has happened:
- More Brexit drama
- The NAFTA never-ending signature story
- The FED increased… and then decreased its rate
- The oil market continues to be difficult
- The U.S. and China are in the middle of a trade war
- Elections are coming up for Canadians this fall
- Both US and Canadian markets got hit big time in 2018
- The yield curve has inverted (OMG!)
- Some Euro countries offer negative yielding bonds (!?!)
I didn’t trade based on those events. In fact, I’ve patiently waited and counted my dividend payments. As of August 20th, my portfolio was at $152,707.51 for a profit of $44,345.32 or $40.9% (18.7% CAGR over 2 years).You can download my portfolio here.
In the end, it’s easy today to smile and brag that “I was right.” But that’s not the point. This portfolio is a real case study showing you that investing in an all-time high market isn’t a crazy idea. Nobody knows when the all-time high market will crash. Therefore, investing in it is really about investing in strong companies and playing the long game. With this perspective in mind, there is only today’s market value and the market value in 20+ years.
PSST! If you are going to tell me that some markets in the world have been stagnant for more than 20 years, please cash in your money from the stock market and stop reading investing articles. If you don’t believe the market will go up, what’s the point of even discussing it? Your mattress is probably a better place to hide your money.
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