Key facts
- Investing at market all-time highs has historically resulted in an average 12-month return of 12.7%.
- 91% of the time, the market was not down 10% one year after hitting a new high.
- USMV has a 0.15% expense ratio and $22.9 billion in assets.
- NOBL has a 0.35% expense ratio and $11.1 billion in assets.
- VT has a 0.06% expense ratio and holds approximately 8,000 companies globally.
A 66-year-old investor facing the psychological challenge of investing at a market all-time high is presented with data suggesting that such timing is not necessarily detrimental. Historically, the S&P 500 has shown positive returns following record highs, with an average 12-month return of 12.7% and a low probability of significant downturns within a year. The article argues that sitting on cash, which earns minimal returns, poses a greater risk than investing at a perceived market top.
Three exchange-traded funds (ETFs) are proposed to address different aspects of this investment dilemma. The iShares MSCI USA Min Vol Factor ETF (USMV) aims to provide a smoother ride by investing in U.S. large- and mid-cap stocks with historically lower volatility, though it has lagged the broader market's recent rally. The ProShares S&P 500 Dividend Aristocrats ETF (NOBL) focuses on companies with a consistent history of raising dividends, offering a potential income stream for retirement. This fund has also lagged the market during the current tech-led rally. Lastly, the Vanguard Total World Stock ETF (VT) offers global diversification by holding approximately 8,000 companies across more than 47 countries, weighted by market capitalization, and has kept pace with the U.S. market's gains.
Research from Fidelity and Vanguard indicates that lump-sum investing at market highs or spreading investments over time (dollar-cost averaging) both have merits, but waiting for a dip can be a costly mistake, leading to missed gains and delayed risk exposure. The data suggests that investing immediately is often more beneficial for those with a long-term horizon.