Is it a Good Time to Invest New Cash?

A common question I hear is, “Is it a good time to invest new cash?” The short answer is yes. Even though it doesn’t feel like it, the S&P has already set over 50 record highs in 2021.

So why? Why bite the bullet and invest now? Peter Lynch said it best, “Far more money has been lost by investors trying to anticipate corrections than lost in corrections themselves.” And the data supports his theory. On average, purchasing shares at record highs has generated similar returns over 1, 3, and 5 years than buying stocks following a sharp decline. An example of this is shown below in Exhibit 1.

This is counterintuitive because it feels like if you invest on a dip, then you’re mastering the art of buying low and selling high. But how do you define a dip? What percentage drop and what index are you tracking? How long are you willing to wait?

Say on September 30th, 2020, you have excess cash that you want to invest for the long term, but you don’t do so because it feels like an ill-advised time to invest money. Instead, you hope to sit out any remaining volatility from the uncertainty surrounding COVID19 and the upcoming election. Fast forward to September 30th, 2021, and you would have missed out on 31.88% returns in the US Stock Market. You would have been better off investing the cash immediately, even in the midst of all the uncertainty we faced in September of 2020.

When I say yes, invest now, keep in mind that this is the short answer. The longer answer depends on your situation. For instance, I am speaking of money you will invest for the long term, not money you’ll need for a goal in a year or two. For example, my husband and I are currently saving to buy a house in Knoxville. We are not investing this money because we do not want a downturn in the market to dictate whether or not we can buy a house. We currently live in downtown Knoxville and love walking to restaurants, but when we’re ready to buy a home, we want to do so regardless of what is going on in the world around us.

There is so much more to this because acting on the data is easier said than done. But we’re here to help. If you decide to start investing, please call or email us and remember that investing is about time in the market, not timing the market.

Hannah Whatley, CFP®, AIF® is an Advisor at Rather & Kittrell, Inc. Hannah is available at [email protected].