Should I wait for the market to go down before choosing to invest?

I have cash that has been sitting in a savings account earning nearly 0% interest, but the market is at an all-time high. Should I wait for the inevitable downturn to invest?

Banking, Personal Finance, Investing
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March 2017
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You’re describing market timing. We’ve all heard the common refrain of buying low and selling high. It’s easy, right? Sadly, like most conventional wisdom, that strategy overlooks important nuance. To win the timing game, investors need to guess both the right time to get in and the right time to get out. But here’s the catch, markets are fickle and ultimately unpredictable. Every data point on the planet may suggest a stock will soon fall, but an irrational market may decide otherwise. Worse, the entire market could move in the opposite direction of sentiment. Remember when people said the market would nosedive if the U.S. elected Trump?

To your point, historical averages suggest we are “due” for a recession. However, the market may very well continue upward. Meanwhile, inflation could continue to erode the purchasing power of the cash you leave in the bank. Ask yourself, how much does the market need to drop before you jump in? Is it 5 percent, 10 percent, 20 percent, more? It’s impossible to determine the exact bottom of the market.

At near-record market highs, someone that can’t emotionally withstand a sudden drop in portfolio value may consider a dollar cost averaging approach to entering the market. The downside to this approach is the opportunity cost of not putting all of your dollars to work. But strategy must depend on risk tolerance, liquidity needs, time horizon, etc. Regardless of how and when investors enter the market, we suggest people build diversified portfolios and maintain a long-term mindset. (For more, see: “Coaching Clients Through Financial Planning: How Advisors Add Value By Managing Behavior”)

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