If you are growing your wealth, few things do more for your financial future than owning assets that are expected to outpace inflation.
What the investment science advocates is unglamorous enough: contribute to a diversified portfolio matched to the rate of return your plan actually requires, and if a lump sum arrives, put it to work promptly so that compounding starts sooner.
Then the market touches a record, and something happens to otherwise sensible people. Money that was headed for a portfolio finds a reason to sit in a deposit account for another month or two, until things settle down. Prices have climbed a long way already, and anything that has risen this far appears to have more room to fall than to rise. So the decision gets made to wait for a decline first.
The instinct is understandable. It rests, though, on a misreading of what a record actually is.
Records are closer to routine
A record sounds like a rare event. After all, on the sporting field, records are celebrated precisely because they are rare, and when they happen, the assumption is that they will remain unbeaten for a long time.
For a market that grows over long periods, a record is closer to routine. If the general direction of travel is upwards across decades, the market spends much of its time passing its old high-water mark and setting new ones. Records arrive in clusters, often for months on end, and then do not arrive again for years. Neither pattern is a signal.
A decline can begin at any time, and most begin unexpectedly, which is rather the point of them. A record high therefore guarantees nothing about the months ahead. It simply tells you very little about what comes next.
Bargain rarely arrives on schedule
Waiting can feel prudent. For a great many investors, it is expensive.
The decline you are waiting for might not arrive for a long time. In the meantime, your money sits idle while the growth happens somewhere you are not.
There is a further problem, and it is the one that people underestimate most. If the decline does come, it will arrive wrapped in bad news, because bad news is usually what makes prices fall in the first place, which means the buying opportunity you had pictured rarely feels like one when you are standing in it. Is the decline itself a reason to wait for a bigger decline? Once you are inside that doom loop, investing with any confidence becomes very hard.
The best investors I have known accept that their timing will never be perfect, and invest anyway. They embrace the uncertainty that systematic investing rewards, rather than attempting to outguess it.
Control the part you can control
More important than any market forecast is the part that is within your reach. Money you will not touch for years belongs somewhere quite different from money you need soon. Getting that separation right does more for your long-term result than any attempt to guess the market's next turn. It is the least interesting decision in investing and comfortably the most valuable.
So if you have money to put to work and your plan calls for it, a record high is not a reason to hold back. The principle we work to when deciding what to do with excess cash is grounded in Nobel Prize-winning science, and we call it “investing by sunset”. Money goes to work as soon as it is available, rather than waiting for a better day.
If handing over a large sum in one go still makes you uneasy, commit now to investing it in equal amounts on set dates over the coming months. The point is that the schedule is firmly fixed in advance, not left to how the market feels on the day.
Feeling uneasy at a high is absolutely normal. Investing well is counterintuitive to the emotions evolution has wired us with. Over long periods, and with no guarantee in any given one, markets have rewarded those who own a diversified mix of shares and stay owners. That reward is measured in future purchasing power, which is what pays for the things that matter to you.
