A common question of late centers around whether it is a good time to invest in the “market”, taking into consideration the all-time highs we’re experiencing. It is understandable to have this concern. Although there is conclusive evidence to suggests that attempting to “time” the market does not work over the long term, there is a way to overcome this common fear.
A key note: When you hear all the talking heads on TV, or the news headlines, or even your friends referring to the “market”, they are typically discussing the S&P 500, the DOW, and/or the Nasdaq. The S&P 500 indeed only represents 500 companies, the DOW only 30 companies, and the Nasdaq doesn’t even represent a group of companies. The Nasdaq is actually an exchange. It doesn’t represent any specific stock groups though many of the stocks that trade on the Nasdaq are technology stocks.
To have a little perspective of the true overall market, there are currently over 24,141* different securities traded worldwide. So, any time you hear someone refer to the Market, your first thought should be “which market? US companies – Large Growth, Large Value, Small Growth, Small Value, Mid-Caps? International companies – Large Growth, Large Value, or Emerging Markets?”
Assuming your portfolio is well diversified amongst the appropriate different asset classes like those listed above there is typically an asset class that is not currently doing well.
So, if your concern is investing at the “peak” of the market, focus on the asset classes or “sub markets,” if you will, that aren’t currently doing as well. For example, currently US companies are doing exceptionally well and have been doing so for quite some time which has allowed them to reach new all-time highs. That’s not to say that trend will or will not continue.
However, International companies are experiencing and have been experiencing returns well below their long-term averages. If you’re looking to invest into a new portfolio (new money), you can begin by implementing your target allocation by focusing first on those asset classes that are not performing well, i.e. buying those markets at their current “low” valuations. You will also need to balance this exposure by also implementing the more stable asset classes within your portfolio – short term, low duration bonds.
This strategy also works well if you already have a well-diversified portfolio and are continuing to add to that portfolio. A strategy I like to call “targeted dollar cost averaging” takes advantage of incoming auto cash contributions and buying more shares of those asset classes that are currently “out of favor.” Again, in this current environment, those cash flows would be targeted at International asset classes and Emerging markets.
If you know where to look, there’s typically an asset class worth buying into without the fear of buying “at the peak.” Remember, the goal should be to continually build a portfolio for the long term.
You can attempt to implement this strategy on your own, but I highly recommend you work with and Independent, CFP® on these and other investment and planning strategies to ensure proper execution.
If you have a portfolio of $1,000,000 and above, contact us and we’ll walk you through how these and other simple and clear strategies can help you secure and enjoy your wealth.