A common theme in my blog posts is that investors need to focus on their time horizon and not just on returns. So it won’t surprise you that a post by Ben Carlson’s blog A Wealth of Common Sense title “What if you only invested in market peaks?” caught my attention.

 

Ben first wrote the post in 2014, and he updated it in late 2020.  The post has a cute 5-minute video that tells the story of a hypothetical investor Bob who consistently saved, never sold his investments, but had the bad fortune of only making investments at market peaks, right before significant market crashes.  The table below shows how long holding periods can save investors from poor market timing.

Market Returns After a Crash

 

So how should an investor approach an aging bull market?

 

Tactically, I have recommended a barbell strategy where high-quality companies exposed to secular themes provide exposure to equity markets. At the same time, fixed income, cash, and alternative investments reduce volatility and provide ballast for portfolios.

 

Over the longer term, a more practical approach for investors that reduces the need for market timing and ‘hero market calls’ would be to save and invest using a regular cadence, like putting a portion of your earnings aside every week or every month.  By saving and investing at a consistent rhythm across market cycles, an investor will end up buying more securities when the market is inexpensive and fewer securities when the market is expensive.

 

Please contact me for a more detailed discussion.

 

Delli (delli@cibc.com)

 

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