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Is it prudent to invest when the market is high?

Team Veye | 07 Jun 2021

Is it prudent to invest when the market is high?

It would come as a revelation that maximum investors lose money due to just a single trait of theirs, timing the market. Also, it is no secret that if you keep waiting for a market correction to start investing you may lose another opportunity.

The golden rule for successful long-term investing is not to worry about timing the market but instead focus on disciplined investing.

It is common knowledge that at any given time there are only two directions where the markets can head, either up or down. At apparent peaks also it remains the same. What would have been a peak some time before might have become a trough now.

Even if we presume that the apparent peak becomes an actual peak in the near term, it means that subsequent levels are going to be lower than the previous. Had we been a disciplined investor, we would not have entered in an all-in position, like in poker, and rather invested systematically with subsequent investments going in at lower levels resulting in a lower average cost and consequently higher profitability as the market progresses in the longer term.

A common fear of investors when the markets have reached a new high is the possibility of a market crash soon after deploying the capital. Some experts at such a stage also advise buying the dip.

But buying the dip requires a high degree of conviction and expertise. The saying “never catch a falling knife “is a good example of things going awry.

Investors might be surprised to learn that the 5-year cumulative returns after declines in the stock market (buying the dip) are lower than the cumulative 5-year return after the market sets new highs.

So, whether you are a newcomer to the stock market or an experienced hand, you can always minimise your risk and have a higher chance of profit by just being disciplined.

Disclaimer

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