Friends have asked me if now is a good time to invest in the market. With the market having gone up so much this year, should they wait until it drops before buying in?
The truth is, no one wants to buy at the top of a trend just to have their investments collapse the next day.
How many times have you bought a stock just to have it drop the next day? Or even worse, a few seconds later! It’s a terrible feeling. But that is the fundamental principle of investing: buying for the long term haul.
It’s not about timing the market. It’s about time in the market.
If you had bought 1 share of Apple at the 700 market top a few years ago, today you’d have 7 shares totaling $800+ in capital gains as well as any dividend payments they issued.
Let’s illustrate this with a graphical example.
Pretend you had bought at the market top before it started collapsing from the housing crash. We’ll use October 2007 as our start date.
Buying at the Market Top
Our end date will be: May 2015.
Using this S&P 500 calculator, we can figure out our returns, with dividends reinvested, and adjusted for inflation. If we plug in our start dates and end dates, we’ll see our results:
So if you’re truly investing, stop worrying about “buying at the top”. Over the long run, the market manages to straighten itself out into decent returns. Especially in an investment vehicle like your 401k or an IRA account where your money will be in there for 10-20+ years.
“The best time to plant a tree was 20 years ago. The second best time is today.”