Jasmine Birtles
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Buy the dip? Think again. Here’s why investors shouldn’t fear all-time highs
Karl
26th Mar 2024
When a stock or other asset hits an all-time high, it may be tempting to feel like it’s a bad time to invest. After all, if an asset is flying high surely it’s better to wait until its value falls before diving in?
In this article we’re going to explore why investors may still wish to buy assets when at all-time highs.
Click on a link to head straight to a specific section, or scroll down for all of the details…
What assets are at all-time highs?
The big American stock market indices – including the S&P 500, Dow Jones Industrial Average, and Nasdaq – are all, near enough, at all-time highs.
The S&P 500, for example, posted a fresh high of 5,233 on Monday, with the index seemingly going from strength to strength. It’s worth knowing that the upward trajectory of the S&P 500 is being mostly driven by the growing appetite for anything to do with artificial intelligence right now. As we know, the S&P 500 is tech-heavy and its constituents include all of the ‘Magnificent 7’ stocks, including chipmaker Nvidia, which has seen its share price skyrocket over the past 18 months or so.
As for the Dow Jones Industrial Average, that also sits at an all-time high, with the index closing in on the 40,000 points barrier. On a similar note, the Nasdaq Composite is also hovering around a record high at the time of writing.
Here in Blighty, the UK’s blue-chip index hasn’t performed anywhere near as well as its American counterparts so far this year.
Despite this, it’s still close to a record high. Many analysts believe it’s now only a matter of time before the FTSE 100 breaches the magic 8,000 points barrier again – it last achieved this in February of last year.
Meanwhile the FTSE All-share index sits just a smidgeon below its all-time high of 4,339 which it achieved in February this year.
Elsewhere, the major European stock markets are also having a jolly time of it as late. Both the French CAC 40 and the German DAX 40 indices are more or less at record highs right now.
Gold & Cryptocurrency
It’s not just equity holders that have been coining it in over recent weeks.
Gold, for instance, is another asset at an all-time high right now. The precious metal reached an all-time high of $2222 per troy ounce in March of 2024. Don’t forget that this high comes despite news of falling inflation across the globe – a situation that would typically have a negative impact on the value of gold.
As for cryptocurrency, well Bitcoin isn’t doing too badly at the moment that’s for sure! The world’s most popular digital currency has soared throughout 2024, with a single coin now worth more than $70,000 USD (£55,300). Bitcoin reached an all-time of $74,000 in mid-March. And while it currently sits below this level, it may not be too long before it posts yet another record high given its reputation for volatility.
Why shouldn’t investors fear all-time highs?
If you’re an investor, your intuition may have you believe that buying assets when at record highs is a silly move. That’s because, quite understandably, our human brains are wired to tell us that it may be wiser to sit and wait until a particular asset falls in price first.
Not only would waiting enable us to buy an asset at a cheaper price, but it would also also help us avoid falling foul of any ‘hype’ surrounding a particular asset, or asset class. That’s the thinking anyway.
However, in reality, things don’t really work like this in the world of investing…
Now before we continue, we should say that here at Money Magpie we don’t have a crystal ball. So, for any of the assets listed above, there is every chance that falls may be just around the corner. Yet, despite this, there are also good reasons why investors shouldn’t necessarily hold off investing in assets that have never been higher. Here are 4 of them….
1. Recent highs could be the start of growth
If an asset is at an all-time high, then it’s possible this could be the start of a long bull run. Momentum is a real thing and if an asset is soaring then, while it could be a bubble, it may also be a sign of increasing confidence among investors towards said asset.
It’s worth knowing the rising asset prices we’re now seeing – especially in the American indices – could be related to the growing expectation that the global war against inflation is coming to an end.
2. Assets are likely to rise over time anyway
Historically, the stock market has continued to rise over the long term despite the odd downturn and correction. This is why buying assets when at all-time high may not be particularly foolish.
For example, if you take the view that ‘time in the market’ is more important than ‘timing the market’ then it’s straightforward to understand why buying assets at record highs isn’t particularly irrational.
3. Timing the market is nigh impossible
Speaking of timing the market, as we’ve covered previously at Money Magpie, trying to pick and choose the ‘right time’ to invest is a very, very difficult thing to do – even the experts (regularly) get it wrong!
Think about it… if a strategy as easy as buying stocks after they’d fallen was a winning one then we’d all be millionaires! The fact is though, strategies such as ‘buying the dip’ or choosing the ‘right’ time to buy a stock is a fool’s errand. Instead, it’s far better to appreciate that Mr Market has the upper hand rather than trying to time the market.
For more on this see our article that highlights the drawbacks of buying the dip.
4. Emotions and investing don’t mix
If you’re reluctant to buy stocks at all-time highs, then this is a textbook example of letting your emotions drive your decisions. The fact is, emotions and investing simply don’t mix.
And while it may be human nature to think that investing when stocks are high is ‘bad’, and investing when stocks are low is ‘good’, it’s a lot more complicated than this in the real world.
You see, a stock that is at an all-time high is just as likely to continue rising as it is to fall. So, if you decide against buying a stock because you feel it’s too high, you’ve no one to blame but yourself if the stock reaches a new record high a few weeks down the line!
All investing carries risk
Regardless of when, or how you choose to invest, always bear in mind that all investing carries risk. This is why before diving in to buy stocks, shares or other assets, it’s worth putting together a investing strategy that closely aligns with your goals and tolerance for risk.
It’s also worth paying close attention to the importance of having exposure to a wide range of assets in order to help minimise risk. For more on this see our article that explains the importance of holding a diverse portfolio.
And finally, when investing always remember that the value of your portfolio may fall. If this thought keeps you awake at night, then do take the time to consider whether investing is really right for you.
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Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence. When investing your capital is at risk.
Cryptoassets are highly volatile and unregulated in the UK. No consumer protection. Tax on profits may apply. Don’t invest in cryptocurrency unless you’re prepared to lose all the money you invest. Cryptocurrency is a high-risk investment, and you should not expect to be protected if something goes wrong.
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