February 26, 2017
Record high after record high. Surely this means that we’re going to face another crash soon? Is this still the right time to invest or should I stay on the fence until prices look a lot more reasonable?
When record highs become somewhat of a daily expectation, their significance diminishes and rightly so. In and of itself, a record high does not mean anything. The media’s attachment to its symbolism is toxic because it raises expectations, plays on emotions and heightens the significance of reversals.
For laypeople, the more important question that we want addressed is whether the S&P500 is still a good passive investment and can still make us money. Our view is a resounding yes. Timing the market and following the ‘buy low, sell high’ principle is an admirable race towards disappointment. What is in theory a good idea may not always be practical. And for those of us who are not experts in investing but want to reap the rewards nonetheless, simplicity is key.
What we’re trying to say is as follows:
Don’t time the markets. Take a look at this tool, which shows you why.
The sooner you start investing in a passive index fund like the S&P500, the better. Use an ISA for tax-free gains.
Always have a long-term view. Don’t look at short term losses with regret; the value of your S&P500 units will never go to zero.
Invest only what you can reasonably afford.
Don’t take out your profits unless you absolutely have to.
A quote from Sir John Templeton comes to mind: “bull markets are born on pessimism, grown on scepticism, mature on optimism, and die on euphoria.” Given the infancy of the Trump administration and the markets’ reactions to it, as well as more positive news further afield globally, it seems that we are far from a state of euphoria. This bull run looks like it has a lot more steam behind it. Even so, our belief is that passive investors should have faith in the S&P500 through good times and bad. Rather than timing and assessing relative states of euphoria, it is a much more prudent approach to ride out each wave as they come. Don’t take our word for it, even Warren Buffett’s betting against hedge funds being able to beat the performance of the S&P500 index and guess who won.
For our UK readers, the best way to start investing tax-free in the S&P500 is via opening an ISA and choosing the Vanguard US Equity Index. Based on our experience our recommendation is Hargreaves Lansdown. Quick setup, cheap fees and user-friendly interfaces – what’s not to like. Given the quick setup, we managed to make our move on the S&P500 before the US election and secured a 41% return.