With the Market at Its Peak, Should You Wait to Invest?

No one wants to buy high, right? But how long do you wait for the "low" to land? Here's a hint: You don't. Sitting on the sidelines isn't the way to go.

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Let’s say you have some cash you want to invest for the long term. You know how important it is to get that money in the market so it can grow and earn compound returns — but when do you invest it?

The answer lies in this fact: It’s about time in the market, not market timing.

This is true even if you’re in your 40s or 50s right now and feel like you need to start carefully minding your investments for retirement. Keep in mind that if you’re 40-something right now, you likely have over 40 years’ worth of life to enjoy and fund — so the cash you could put in the market now certainly counts as “long term.”

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A lot of people are afraid of accidentally buying in at the height of the market, though. They say, “We should hold off until the market dips — because it’s going to dip. It’s the longest bull market we’ve ever seen; it’s been going up for so long. People are even talking about recessions in 2019 … so we should just wait.

This thought process could lead to huge, costly mistakes if it causes you to sit on the sidelines with your money and wait to invest.

The Market Will Go Down, But ...

The problem is not necessarily with your logic. Thinking, “The market keeps going up and up, and it’s going to crash eventually,” is a reasonable, intelligent, well-informed thing to consider. Because yes, the market will dip. It will go down, and at some point we likely will see a correction (if not a full-blown bear market).

The problem, or the mistake you could be making, is the fact that you keep your cash on the sidelines as you try to get the timing of that dip correct. That’s a huge opportunity cost. No one — not you, not me, not the financial media, not your co-worker with the next hot stock pick — is ever going to know when the next market correction will happen.

There’s no telling what the market is going to do tomorrow, and anyone who pretends they know is speculating (or guessing) at best… and lying at worst. Sure, we can know that it will happen at some point. But there’s no way for anyone to tell if that correction will happen tomorrow or in two years. And if that dip does take two years to get here, you miss out on two years of potential gains.

Even worse, two years from now, you’re still going to be saying the same thing: “Well, it’s going to go down at some point. So I’ll just wait.” But what if the dip is five years away? That’s not just hyperbolic. People were talking about the “fact” that the market was on the verge of a crash in 2016. It’s now 2018 and it hasn’t happened yet.

That’s the point. We know it will happen, but we have no clue when.

Investing Systematically for Time in the Market, Not Market Timing, Is the Way to Success

I understand: You might be afraid to make a mistake by putting your available cash into the market at a peak. And you’ve heard over and over again that you’re not supposed to buy high. “Be fearful when others are greedy,” right? Well, kind of.

It’s not that you should completely disregard what’s going on with stocks and other securities at what seems like a stock market high. The answer to “when do I invest my cash” is not, “Oh just throw your money in the market. It’ll be fine.”

But that doesn’t mean you shouldn’t systematically invest your money if your goal is long-term growth. Systematically investing means not trying to time when you invest your money. As should be clear at this point, timing the market is a pointless activity, since no one knows what the market is going to do tomorrow. There’s no way to tell if it will keep going up or if you’ll wake up in the morning to realize today is the day it’s all tanking.

If you want to systematically invest, that means you quite literally create a system first — then use it to invest strategically and rationally (rather than emotionally).

What Happens If You Always Invest at the Worst Times, When the Market Is Highest

Not convinced? Then we can look at the example of The World’s Worst Market Timer to show you how it’s more about time in the market than timing the market.

CFA and author Ben Carlson introduced us to Bob, a guy with such poor timing that from 1972 to 2007 he only invested in the market in the months before major market crashes:

  • Bob invested $6,000 in 1972 right before the market fell almost 50% in 1973.
  • He kept saving $4,000 per year as the market bounced back and finally felt confident enough to invest his $46,000 in savings in 1987, when stocks crashed again and lost 34%.
  • Bob’s bad timing continued. This time he saved $6,000 per year and then invested the resulting $68,000 right at the end of 1999 just in time to see the market lose almost half its value again.
  • Finally, he ramped up his savings to $8,000 per year. And, of course, he funneled $64,000 in cash into his investments in 2007 and saw the Great Recession deliver a 52% loss.

Bob is probably your worst nightmare come to life — at least, you might think that just by reading the description above. But the thing about Bob is that while his timing was absolutely atrocious, he never sold any of his positions from 1972 to 2007. He put all his cash in at the worst times, but once he was in the market he stayed put.

So, what happened to Bob’s wealth? Was it obliterated? Hardly. From 1972 to 2007, Bob invested a total $184,000. And what did he end up with in 2013? $1.1 million. Not bad for the World’s Worst Market Timer.

What you should take away from this example is the fact that even with the worst possible market timing, you can still come out in pretty good shape if you’re a long-term investor who doesn’t jump in and out of the market. It’s about time in the market not market timing!

There are so many decisions you need to make when trying to time the market, and you have an entire lifetime to invest. You can’t possibly time the market and get it right every single time because, again, no one has any idea what the market is going to do in the short term.

Don’t Wait to Invest

So, what’s the bottom line? Sitting on the sidelines can be more costly than investing at the worst possible time in the market — so you really have no excuse for sitting there with your cash saying, “I’m going to wait until the market dips.”

Especially when you consider what happens if you had just been “dollar cost averaging” this whole time. Dollar cost averaging is often the solution to “systematic” investing that you can use to stay on the right track. This is when you buy a fixed dollar amount of a specific investment on a regular schedule. You choose the dollar amount, the investment, and the schedule before you take any action — and those decisions should be based on your overall investment strategy.

Dollar cost averaging is essentially what most people do with their 401(k): They contribute a fixed amount into the fund on a regular basis (paydays). But you can use the process with other investment vehicles, like your IRAs or brokerage accounts.

Brian Preston and Bo Hanson, hosts of The Money Guy Show, took the example of Bob the World’s Worst Market Timer and looked at it from a new perspective. Brian first continued to look at Bob’s situation from 2013 to 2018 to show the full cycle to date, which illustrates even picking “the worst times to invest” leaves you in a pretty good position. (Spoiler alert: Bob is still a pretty wealthy guy, even with his terrible timing.)

But then Brian took the scenario that Ben Carlson created and asked: What if Bob dollar cost averaged the entire time, between 1972 and 2007? He wouldn’t have had $1.1 million. He would have had over $4 million in his portfolio in 2018.

This removes the decision fatigue that comes with trying to decide when you should invest to avoid the “worst” times to put cash in the market (at market highs). Dollar cost averaging also eliminates a lot of opportunity for human error — and especially the opportunity to let your cognitive biases get in the way of rational investment behavior.

This gives you that systematic process to use over time to ensure you’re regularly contributing money to your investments — and not stockpiling cash that you end up sitting on for years because you’re not sure of the “best” time to invest.

In most cases, the best time to invest for the long term is now — and to continue doing it, regularly and methodically, without letting current events or concerns over market timing spook you off your strategic course.


This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Eric Roberge, Certified Financial Planner (CFP) and Investment Adviser
Founder, Beyond Your Hammock

Eric Roberge, CFP®, is the founder of Beyond Your Hammock, a financial planning firm working in Boston, Massachusetts and virtually across the country. BYH specializes in helping professionals in their 30s and 40s use their money as a tool to enjoy life today while planning responsibly for tomorrow.

Eric has been named one of Investopedia's Top 100 most influential financial advisers since 2017 and is a member of Investment News' 40 Under 40 class of 2016 and Think Advisor's Luminaries class of 2021.