MONEY HACKS: Your Strategic Approach to Investing in High Markets

As the US Stock market hovers around, and makes new all-time highs, investors go through a series of emotions on what to do – “buy more, sell, stay put?” On Friday, Jan 19, 2024,  the U.S. stock market, as represented by the S&P 500 index, achieved a new closing high, surpassing the previous peak in early January 2022.

While this is great for most investors, it can also create different concerns, decisions, and emotions from investors. Sometimes it is the urge that “now is the time to invest,” or conversely, some investors will want to move out of stocks. In reality – what should you do?

Neither of these approaches is inherently right or wrong. Frequent adjustments to investment accounts can have adverse effects, especially when considering the consistent positive returns delivered by the U.S. stock market over longer periods, averaging around 7.5% to 9% annually.

Interestingly, despite this market performance, the average investor tends to underperform, highlighting the impact of emotional decision-making. The key to success? A well-defined strategy that aligns with your unique goals.

Whether you're in your mid-thirties with a 30-year investment horizon or nearing retirement in the next three to five years, focus on aligning your strategy accordingly. Emotional decision-making is common during market highs, but adhering to a consistent strategy generally yields better outcomes.

Any money questions you’d like answered? Our Money Hacks series is created from conversations we have with employees, investors, savers, and all people planning for their financial futures. What topics are on your mind for our next episode?

Video Transcript:

Last Friday, the U.S. stock market, represented by the S&P 500 index, reached an all-time closing high, surpassing the previous peak in early January 2022. Currently, we are experiencing record levels in the markets, and there's potential for further growth.

For investors managing their 401k, 403b, or other investment accounts, such periods often evoke a mix of emotions, questions, and considerations regarding investment decisions. A common and intuitive response during market highs is the urge to invest more. On the contrary, a counterintuitive viewpoint suggests that a market pullback may be imminent, leading some to consider getting out of stocks or adjusting their investments.

However, neither of these approaches is inherently right or wrong. In reality, frequently tinkering with your investment accounts can have adverse effects and negative implications. Over longer time frames, such as five, ten, or even twenty years, the U.S. stock market has consistently produced positive returns, averaging around 7.5% to 9% annually, depending on the specific period observed.

Interestingly, despite this consistent market performance, the average investor tends to underperform, sometimes by 5 or 6 percentage points per year. Over a 20-year span, this difference significantly impacts account growth. So, while the excitement or nervousness around all-time market highs is understandable, the key is to have a strategy that suits your needs and stick to it.

For instance, if you're 35 years old with a retirement horizon of 30 years, staying invested in stocks for continued growth makes sense. On the other hand, if retirement is approaching within the next three to five years, adjusting your investment strategy to align with your time horizon becomes crucial. Emotional decision-making during such periods is common but often not in the best interest of most investors.

Instead, adhering to a well-defined strategy generally yields better outcomes. If you have questions or need guidance on your investments, visit moneynav.com for a wealth of information or connect with your advisor for a one-on-one coaching session. Thanks, and see you soon.