When Is the Right Time To Buy?

By: Sam Swift, CFA, CFP®, AIF®

I’ve heard the question a lot lately: Is now the right time to be buying into the market? I can’t blame the questioners. We’re currently experiencing one of the longer bull runs in history and there are headlines every day wondering whether prices can really keep going up which culminated in my favorite a few months ago:

“Global stocks hit record highs worrying investors”

This mentality has flipped in recent years. It used to be that greed and FOMO (the Fear Of Missing Out) were the dominant emotions and people wanted to rush into high markets (think of the DotCom bubble). Now people seem to be waiting for the other shoe to drop likely because many still hold the recent trauma of 2008-2009 close in their memory. This is an improvement—as Warren Buffett famously put it, “Be greedy when others are fearful, and be fearful when others are greedy”—but it is still market timing in disguise. It’s worth repeating this mantra: We cannot control what is going to happen and we cannot successfully predict what is going to happen.

The challenge we should all pose to ourselves when making investment decisions is to ignore the noise and focus on the purpose. Why are we investing in the first place? Are these long-term dollars that won’t be touched until retirement? Is this some extra cash for a new car in the next two years? Is this money that is likely going to heirs?

The chart below shows the best and worst returns over different time periods for stocks using data back to 1926.

These numbers include the Great Depression—all of the “worst return” periods begin sometime right before the crash.

If we start the data in 1940 and remove the Great Depression, here’s what we are looking at:

Regardless of the data set, the point remains the same. Notwithstanding what the market has done recently, it’s never going to be a good idea to save short-term money in the stock market. The risk is far too great that you will have less money when you check your account in twelve months—in fact, you should expect to have less about 40% of the time.

On the other hand, if this is long-term money of 15+ years it is always the right time to invest. Even the most extreme outcome of investing just prior to the Great Depression still resulted in the growth of wealth given enough time. Add in a disciplined rebalancing strategy and international diversification—neither is represented in these numbers—and the odds are overwhelmingly in your favor when you are looking far down the road.

It all comes back to your purpose—what are you trying to accomplish with this money and how much time do you have to do it? Basing investment decisions on anything else is a fool’s errand and is likely to harm what really matters.


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