This is why you buy when the market is breaking records

The Nasdaq hit an all time high yesterday, ending the day at 5,056. The previous record dated back to March 10th 2000, when the index was at 5,048. As you can guess, the previous record was set shortly before the dotcom crash that sent the Nasdaq down nearly 4,000 points to 1,114 in 2002.

The S&P 500 set an intraday high yesterday, but closed just a few points shy of a new record.

Looking at the Dow, we find an equally bubbly story…

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The low in 2009 was 6,626. Today we’re at 18,058. That’s an insane roller coaster that has been climbing aggressively for the last six years.

THIS BUBBLES GOING TO POP! 

But guess what. You should probably keep investing in the market anyways. In fact, this is the exact way the market is supposed to work. Although there are peaks and valleys, the market trend has always been in an upwards direction. ALWAYS.

Sure, we have a recession (or depression) every decade or two, but these occasions are always followed by a lengthy period of gains. For every two to four years of losses, we average five to ten years of gains.

The market highs are getting higher, which means the lows get higher too when the crash finally comes. It’s a beautiful thing.

WHY you BUY in a bubble. 

In June 2013, I wrote a post titled I might take out a $30,000 401k loan just to piss some of you off. I was thinking of borrowing from my 401k and one of the primary draws was that the market was trading at all time highs (the Dow was at 15,000 for the first time ever). Why wouldn’t I want to lock in the sexy appreciation I had earned?

Fortunately, I was too chicken to take out the loan. Thank goodness considering the market has shot up another 20% since that post.

No one can time the pop.  

The problem isn’t with identifying when the market might be in a bubble. It arguably is right now.

Problems come when you try and preempt the bubble’s pop. You could sell today thinking things are crazy overvalued, only to find out this gravy train goes on for another three years before there is a correction.

This is why I need to constantly remind myself that I should think about my investments like I think about my marriage.

To have and to hold from this day forward. 

In sickness and in health. 

In good times and bad times. 

For richer or poorer. 

Until death does us part.

I will contribute to my investment accounts. 

7 thoughts on “This is why you buy when the market is breaking records

  1. I agree with the fact the stock market will correct it’s self probably within the next year or two. Makes sense it can’t just keep rising. To that point I also get why you really shouldn’t change your investing plans. However thinking towards the future wouldn’t you want to slow down, save some cash on the side, then when the bubble pops invest it at the low point?

    What are your plans after it pops?

    Big fan of your posts, already subscribed 😉
    -RM

    • I see your point, but my concern with timing the pop (meaning saving up cash to buy when the pop comes) would be that we don’t know what the pop will look like.

      Maybe the markets go to 22,000 over the next couple years, and then correct down to 19,000 (higher than they are today). Sure there was a correction, but you would have been better off buying in at today’s prices than at the future popped price.

      Ya feel?

      • Awesome counter point! Did not consider that scenario. When the market corrects itself do you plan on investing as usual or ramp up?

  2. Love this! I’m a huge fan of having a plan and sticking to it, no matter what the market is doing. I think it is impossible to time the market, so there is no point in worrying whether it is going up or down – you’re better off spending that energy finding more money to invest. Besides, when the market does finally have a correction, you’ll probably still have money to invest then, even when you’ve been investing all along.

  3. Your age and risk tolerance make all the difference. For people in their 20s and 30s, a heavy allocation in stocks is a wise option because you have lots of time to ride out any downturns. For people as old as myself, a more conservative approach is warranted as my main concern is capital preservation. That said, the worst thing anyone can do is to sell off stocks if there’s a downturn, as you may miss the start of an upswing. On the other hand, you can’t assume that an upswing is necessarily going to occur shortly after a correction (e.g., the collapse in Japan after 1991 lasted more than a decade).

  4. How about an update on your past investment in manteresting. Changes in expectations, challenges, etc.

  5. Investing as much as you can, whenever you have it, in the asset allocation that makes sense for your situation. You’ll never regret having your money working for you as much as possible, and it’s impossible to time the market.

    Dollar cost-averaging really is a powerful thing for those of us still saving for retirement/financial independence. Even if the market tanks, I’ve bought shares at lower price points in the past leading up to current highs, and will buy shares at the post-tanking lows at the same interval I always was buying at (with every paycheck, and/or extra at the end of each month). In the end, since the eventual movement of the market is up (and if it isn’t, we’ve got problems) and since some companies/index funds pay dividends (which means even long periods when stocks were “flat” weren’t truly “flat”), you’ll eventually win some significant appreciation of your investments.

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