Why Buy When the Market is High?

If you’re like most people, you probably think a lot about when you should be putting money into the market. Everyone knows the adage to "buy low and sell high".

So when the market is roaring upward, you might be inclined to pull back in case those highs turn into a correction. But taking a pause when the market is going gangbusters can weigh on long-term performance.

We believe attempts to time the market rarely work out well, and maintaining a disciplined investment strategy is important to achieving consistent growth. Let’s discuss why we think consistent investment, even in a booming market, can be the best approach toward achieving your financial goals.

A market high doesn’t guarantee a decline

Investors often worry that 'if the market is high, it must be about to crash'. While market corrections are common, all-time highs don’t guarantee that a big decline is just around the corner. 

Evidence has shown that in some cases, markets continued to climb for years, even after setting new records. For example, consider the bull market that existed from 2009 to early 2020. Following the 2008 financial crisis, the S&P 500 rose by slightly more than 408% in real terms (with dividends reinvested) between February 2009 and February 2020.¹ Investors who waited for a decline to invest would have missed out on the longest bull market in history. Markets can go up for many reasons—earnings, economic growth, increasing innovation—and if you hesitate when the market is high, you could potentially miss out on attractive opportunities. 

Timing the market is nearly impossible

Academic and industry research have suggested that timing the market is extremely difficult. In a 2023 note based on extensive research, investment firm Charles Schwab stated that "Our research shows that the cost of waiting for the perfect moment to invest typically exceeds the benefit of even perfect timing. And because timing the market perfectly is nearly impossible, the best strategy for most of us is not to try to market-time at all. Instead, make a plan and invest as soon as possible."² 

In its strongest form, the efficient market hypothesis (EMH) posits that all information, public and private, is incorporated into a stock’s current price. If this is the case, it should be impossible to outperform the market through market timing or expert stock selection because markets would be efficient. 

However, many investors do outperform the market, suggesting that a weaker variant of the EMH is at play. But looking at the long-term results of professional money managers suggests that more often than not, historically, passively-managed (index) funds have outperformed actively-managed funds. According to Morningstar, only about 29% of actively-managed funds beat their average indexed peer over the decade through June 2024.³ 

If professional investors underperform when they actively buy and sell to try to time the market, to us it seems it’s not very likely that the average retail investor would do any better.

Staying invested protects you from missing out

So if you can’t time the market, what can you do? We believe that it’s time in the market, not timing the market, that counts, and history backs us up.

The market, historically, has typically grown more than it has declined over the long term. Over the past 96 years, through the end of December 2023, 94% of the 10-year periods have been positive for the S&P 500.⁴ It can be concluded that those investors who stayed invested through highs and lows usually reaped the benefits of their discipline.⁵

Investing when prices are high can feel scary, but today’s high might be only a pit stop on the way to future growth. All investing involves risk and may lose money (including principal). That being said, sitting on the sidelines when the market is roaring could lead to missing out on good opportunities. 

Inflation could make waiting a risky proposition

When you’re not investing, you’re not just avoiding potential losses and missing out on possible gains—you’re also losing purchasing power. Inflation means that the cash you have today will buy less in the future. When you’re investing, even if there are short-term dips, your money can have the potential to outpace inflation. 

Let’s look at the S&P 500 as an example. From October 2000 until October 2024, the S&P 500 (with dividends reinvested) appreciated by slightly more than 258% adjusted for inflation.⁶ It is not possible to invest directly into the S&P 500; however if one had invested in a fund that tracked the S&P 500 during that time period (with dividends reinvested), that investment may have had an average annual return of 5.46% (after accounting for inflation) during that four-year window. 

The power of dollar-cost averaging

So how can you handle the very real anxiety about possible corrections while still not missing out on gains? Dollar-cost averaging (DCA).

In this approach, you invest a fixed amount of money at regular intervals, regardless of market conditions. For example, you might commit to investing $500 every month. When the market is high, your $500 buys fewer shares. When the market dips, your $500 buys more stock. This strategy helps to reduce the impact of volatility, while not trying to time the market. 

Instead of worrying about when to invest, you’re consistently in the market. You could potentially maximize the chance to lower the average price over time and reduce costs, which we believe should have a positive impact on long-term results. 

Long-term thinking prevails

Short-term moves in the stock market make the headlines, and in a constantly connected world, investors are bombarded with news. News flashes broadcast record highs, market commentators trumpet predictions, a correction is imminent!  If you listen to all the noise, it can be overwhelming and arouse emotions that may lead you to make bad decisions. 

The reality is that the S&P 500 has returned around 10.5% on average annually since its inception in 1957.⁷ While past performance is no guarantee of future results and all investing carries risk, it can be concluded—based on historical evidence—that the S&P 500 has consistently marched upward over longer periods of time. Even when equities hit turbulent times, many investors who rode out short-term volatility and maintained discipline came out ahead in the end.