What’s Wrong With Buy Low, Sell High? Here’s What The Market Data Says

One of the primary goals of investing money in the equities market is to eventually take out more than you put in—buy low and sell high. However, when the S&P 500 hits as many all-time highs as it has this year, the decision to start or continue investing can masquerade as a counterproductive endeavor. Who wants to pay top dollar if the prices are about to drop?

But further examination leads to a surprising conclusion.

As of this year’s third-quarter completion, the S&P 500 has had 43 all-time highs. In other words, roughly 22% of 2024’s days thus far have closed at a new all-time high for the S&P 500. That means one every five days. Can the market possibly keep up this pace?

No one can predict the future, but history tells a clear story. Calculating all the data from 1928 onward shows positive returns for every quarter, on average, with the fourth quarter performing the strongest, rising 2.9%.

Remember, this doesn’t mean every quarter since 1928 has been positive, but the overall average of each one has been.

The silver medal went to Q2 at 2.3%, then Q1 grabbed the bronze at 1.7%. Q3 missed the medal ceremony but ended in positive territory, with an average return of 1.3%. It bears repeating that the past is not a future guarantee but can provide perspective regarding the probability of seasonal trends. Such an insight may be especially helpful to hear now, as a tense presidential election looms. It would be logical to assume political anxiety had the potential to negatively affect returns, but the data clearly show no such occurrence since 1928 was significant enough to prevent the overall fourth-quarter average from out-earning the others.

In other words, anything can happen, but there’s no inherent reason to fear impending doom.

Financial FOMO

As with the hesitancy to invest at a market crest, folks may also be uncertain about selling when a new peak might soon rise above the current one. This uneasiness reflects a natural desire to maximize gains and a fear of missing out: Financial FOMO.

Sure, selling today looks lucrative, but would tomorrow be even better? It conjures the image of a game show contestant risking assured prizes to see what’s behind “Door Number Two.”

In truth, the right time to withdraw is a very personal decision and depends on many factors, including your target retirement date and how firm you are about sticking to it. No one has a crystal ball, but with forethought, planning, and family communication, many happy retirees have successfully navigated the timing.

Psychological Barrier

There can be psychological barriers to investing when the market is booming. The concept of “buy low and sell high” has been ingrained into most people since a young age, but how do markets fare once a new all-time high has been set? The answer may astonish you.

If you had invested in the S&P 500 Index exclusively when a new all-time high had been set between 1988 and 2023, widely considered inopportune moments, your average forward return over the next one, two, three, and five years would be higher than simply investing in the market on any given day. In other words, historically speaking, it’s been more advantageous for investors to put money to work when the market sets a new high. So, instead of buying low and selling high, you might be able to buy high and sell higher.

Bottom Line

The future is uncertain, particularly in the short term. However, long-term trends point to markets generally rising over time. New highs are more commonplace than they seem, and despite the human fear that “winning can’t last,” they don’t historically indicate lower returns moving forward. In fact, it’s possible for them to suggest that more growth could be on the horizon.

The general rule of thumb is that time in the market beats timing the market. As flashy as all-time highs might be, they don’t necessarily change the equation.