The engaging discourse between the two experts revolves around an intriguing question posed by an article: Is buying stocks when the S&P 500 reaches a new all-time high a smart strategy? According to historical trends, it often is. The article argues that high stock prices, which typically make investors apprehensive due to fears of market reversals, are actually excellent opportunities to invest. The rationale is that one all-time high usually leads to another shortly afterward.
Shana notes that the market this year has hit over 30 new highs, supporting the article’s claim that one high leads to another. However, she cautions against trying to time the market, emphasizing the unpredictability and commonality of market corrections. Instead, she recommends a strategy known as dollar-cost averaging, which involves regularly investing a fixed amount of money into a portfolio to mitigate volatility over the long term. Additionally, she advises keeping emotions in check and avoiding the fear of missing out (FOMO).
The discussion then shifts to real-life examples of investors who timed the market poorly, particularly a hypothetical investor named Bob, who habitually invested at market highs. Despite his ill-timed investments, Bob still saw significant returns over 40 years, amassing $1.1 million from an initial $140,000 investment. This example underscores the long-term resilience of the market, even for those who may not have the best timing.
While acknowledging the inherent volatility and lack of guarantees in the stock market, the experts agree that, historically, stocks have been a solid hedge against inflation. They do express concerns about the current levels of national debt and high spending, which could alter future market conditions. Nonetheless, they maintain that investing in stocks remains a viable strategy for the foreseeable future, provided one exercises caution and maintains a long-term perspective.