Should I Invest When The Market Is High? Dispelling The Buy Low, Sell High Myth

Most investors realize trying to time the market by always buying low and selling high isn’t a realistic endeavor. Yet even with that knowledge, if you have a substantial amount of cash to invest, the thought of investing when the stock market is hovering near all-time highs may give you pause. Similarly, when facing the opportunity to ‘buy the dip’ (remember March 2020?), few investors have the stomach to do so.

As reasonable as these examples may sound, they both describe aspects of market timing. Despite the recent pullback in the U.S. stock market, the S&P 500 has already set 10 new record highs in 2021 and coming off two very strong years. So what should you do if you have cash to invest and the market is strong?

 

Should I invest when the market is high?

Sitting in cash just because the S&P 500 is setting new highs is a mistake on several levels. First, when investing, it’s critical to make decisions based on long-term expectations, not short-term market moves. Second, past performance is not indicative of future results. Setting new highs doesn’t necessarily mean the market has peaked and a correction is imminent, just as a pause during a sharp selloff doesn’t mean there’s not still further to fall.

Further, historical data does not support the idea that investing cash when the market is high is likely to produce lower future returns. In fact, according to J.P. Morgan, investing on days where the S&P 500 closed at a new all-time high can actually produce better returns than investing on a day where the market didn’t set a new record.

Investing at new highs…