Should You Buy Index Funds at All-Time Highs?
Summary
TLDRThis video script explores the concept of investing at all-time highs, drawing parallels between the stock market and the achievements of pole vaulter Sergey Bubka. It challenges the fear of investing at peak levels, using historical data to show that markets often perform well post all-time highs. The script also discusses the pitfalls of a 'switching strategy' and emphasizes the importance of long-term investment, suggesting that new highs can inspire further progress, both in sports and finance.
Takeaways
- 📈 Global and American index funds, including the S&P 500, are currently at all-time highs, driven by a few mega companies.
- 🤔 The concern about investing at these highs is common, but historical data suggests that all-time highs are not unusual and markets often perform well afterward.
- 🏅 The story of Sergey Bubka, a dominant pole vaulter, illustrates the idea that reaching new heights can be followed by even greater achievements, not a peak.
- 📊 Historically, the S&P 500 has set over 1,250 all-time highs since 1950, showing that peaks are a regular occurrence in the market.
- 🔢 After reaching an all-time high, the chances of the S&P 500 being down more than 10% decrease significantly over time, being 9% at 12 months, 2% at 3 years, and 0% at 5 years.
- 💡 Long-term investment horizons can mitigate the effects of short-term market declines, as time in the market is a key factor for growth.
- 💼 Research indicates that many retail investors, especially younger ones, are increasing their cash positions, possibly missing out on the benefits of investing in the stock market.
- 📉 A strategy of moving to cash at all-time highs and returning when the market has pulled back can significantly underperform a 'buy and hold' strategy, as demonstrated by a hypothetical 100-year investment scenario.
- 🚀 The 12 months following an all-time high have historically been a period of strong performance for large-cap companies, suggesting that being out of the market during this time could mean missing out on gains.
- 🤷♂️ Investors' fears of investing at market highs may be misplaced, as waiting for a perceived 'better time' could lead to further inaction during market downturns.
- 🌱 Peter Lynch's quote about always having something to worry about in investing highlights the importance of not letting fear dictate investment decisions and recognizing the potential for ongoing growth even after record highs.
Q & A
What is the current situation with global index funds and the S&P 500?
-Global index funds and the S&P 500 are currently at all-time highs, with the performance being driven by a handful of mega companies whose values have reached unprecedented levels.
What did Peter Lynch say about the market and should we be worried about investing at all-time highs?
-Peter Lynch famously said there's always something to worry about, suggesting that despite market highs, it's not necessarily a reason to avoid investing, as there are always concerns in the market regardless of the time period.
Who is
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Outlines
📈 Market Highs and Investment Strategies
This paragraph discusses the current high valuation of global index funds and the American S&P 500, noting the influence of a few mega companies. It raises the question of whether it's wise to invest in index funds at these highs, referencing Peter Lynch's advice. The script also draws a parallel to the world of sports, specifically pole vaulting, where Sergey Bubka's dominance led to a unique sponsorship deal with Nike, incentivizing him to break world records. The summary emphasizes the importance of understanding market behavior over time and the potential for continued growth, even after reaching new highs.
🏆 The Consequences of All-Time Highs
The second paragraph explores the concept of all-time highs in the context of long-term investment. It uses historical data to show that all-time highs are not unusual and often lead to further growth. The summary points out that investors who avoid the market at these peaks based on fear of a pullback could miss out on significant gains. It also highlights the negative impact of a 'switching strategy' that moves investments in and out of the market at peaks, which historically has led to substantial losses. The paragraph concludes with a reminder that records, whether in sports or the market, are meant to be broken and that reaching new heights can inspire further progress.
🎉 The Celebration of New Records and Market Optimism
In the final paragraph, the script reflects on the psychological impact of reaching new records, both in sports and financial markets. It suggests that achieving new highs can boost confidence and lead to even greater achievements. The summary discusses the potential for markets to perform well after reaching all-time highs, using the example of large-cap companies' performance in the year following such milestones. It also addresses the common investor behavior of waiting for a market dip before investing, questioning whether this is a rational strategy or simply a response to fear. The paragraph ends by invoking Peter Lynch's philosophy that there is always something to worry about in investing, but this should not deter participation in the market.
Mindmap
Keywords
💡Global Index Funds
💡S&P 500
💡Mega Companies
💡All-Time Highs
💡Investment Timing
💡Pole Vault
💡Sergey Bubka
💡Risk Management
💡Market Performance
💡Record Run
💡Peter Lynch
Highlights
Global index funds and the American markets, including the S&P 500, are currently at all-time highs.
Performance of these markets is primarily driven by a few mega companies with unprecedented valuations.
Peter Lynch's famous saying suggests that there's always something to worry about in investing.
Sergey Bubka's surprise victory in pole vault at the 1983 World Athletics Championships marked the beginning of his dominance in the sport.
Nike's innovative sponsorship deal with Bubka incentivized him to break world records rather than just win competitions.
Bubka's financial strategy led him to break the men's pole vault world record 35 times during his career.
The American market has been at all-time highs 30% of the time since January 1926.
The S&P 500 has set over 1,250 all-time highs since 1950, averaging about 17 a year.
Investors face a 9% chance of being down more than 10% one year after an all-time high, which decreases to 2% over three years, and to 0% over five years.
Research indicates that 39% of retail investors are increasing their cash positions, with a higher trend among younger investors.
A 100-year investment study shows that a $100 investment would be worth $85,000 today, compared to only $879 with a switching strategy out of stocks at all-time highs.
Markets tend to perform well after reaching an all-time high, with large cap companies showing the best average performance in the 12 months following such highs.
Peter Lynch's quote encourages investors not to let market highs deter them from participating due to fear.
The current pole vault world record is higher than Bubka's, illustrating that records are meant to be broken and heights surpassed.
Despite Bubka's tarnished reputation in Ukraine due to Russian connections, his athletic achievements remain a testament to human potential.
Investors are encouraged to consider the historical performance following all-time highs and the potential for continued growth rather than fear-driven inaction.
Transcripts
the global index funds that I invest in
on a regular basis have never been
valued higher than they are right now
give or take a little bit same for the
American markets the S&P 500 is
basically at all-time highs a record run
here for the S&P record highs record
highs if we dig under the hood we see
that the performance of the S&P 500 the
whole American Market even the global
stock market is been driven by a handful
of Mega companies whose values have just
touched Heights never seen before Peter
Lynch famously said there's always
something to so should we be worried
about throwing our money into these
index Investments at alltime highs
should we instead wait for the
inevitable pullback before we invest
that is what we're going to discuss
today well that and pole vating I hope
that's okay with
you back in
time it's
1983 welcome from Helsinki This
Magnificent Stadium host today the first
Helsinki hosts the world Athletics
Championships and as Titans of track and
field like Carl Lewis do their thing a
little known P vter called Sergey bbka
snatches gold in a surprise Victory this
Victory would start a trend of complete
dominance of the sport for the next
decade oh the world record has gone this
guy was good so good in fact it said
that his competition essentially gave up
competing against him this posed a
problem for his sponsors Nike who would
typically pay out every time an athlete
won but this guy always wins so what do
we do how about instead of paying him to
compete with everyone else we pay him to
compete with himself Nike didn't
incentivize bubka to go higher in the
competition than his competitors but
higher than anyone's ever been before so
it's a new world record hike for bubka
oh and he goes clear $100,000 every time
he broke a world record bubka was as
financially Savvy as he was good at
flinging himself in the air so do you
know what he did he set the world record
for the men's pole vault around 35 times
during his career just moved it up 1
cimeter at a time two World Records in
two successive FS 200 G's for that much
space Oh the world record has gone while
I'm sure that Nike were happy with their
athlete you can't help but feel that
they might have underestimated his
potential to keep going higher bobco was
the first man to ever cross the 6 meter
range when you compare that to the first
official record of 3.15 M set by Francis
temple in 1849 seems like a ridiculous
achievement this constant progression of
the pul Vault world record over the
years demonstrates how in all walks of
life we continue to doubt the potential
of humans to reach Greater Heights and
this is something that is core to our
discussion today okay now we'll get to
the important stuff of the
1,176 months since January 1926 the
American Market has been at all-time
highs in 354 of them 30% of the time
since 1950 the S&P 500 has set
1,250 all-time highs that means it's
averaged about 17 a year that's what
this looks like by decade so it's clear
that alltime highs happen all of the
time and I think that's the first thing
to understand here they're not unusual
even though the media likes to make a
massive song and dance about them when
they happen record run record highs
record highs what I want to understand
now though is following an all-time high
when the market is at its peak is that a
good time to buy looking backwards which
I know is no indication of what might
happen going forwards but it's all we've
got what are the chances that investors
who buy at an all-time high end up down
in the Years following we'll be using
the S&P 500 again for this because the
data is widely available and because the
American Market currently makes up about
65% of the global stock market so it's
going to be crashes in this market that
leads to declines in portfolio
performance I buy a global index myself
and Below I've linked a document that
goes over the most popular Global and
American Funds on each of the major
brokers in the UK if you want to copy
these three pie charts put together by
RBC Global Asset Management look How
likely it was for the S&P 500 to be down
more than 10% from all-time Highs at
different time periods so take any
alltime High since 1950 go out 12 months
and there's a 9% chance that you're down
10% or more extend that timeline to 3
years and the chances are only 2% and at
5 years the chances of your portfolio
dropping 10% from an all-time high was
Zero time with investing as always is
your friend here and longer time
Horizons tend to correct for bad luck if
you're a person that invested at an
all-time high and then markets decline
but even still a 9% chance over 12-month
period it's pretty good odds but many
investors are still apprehensive it
would seem research of of 10,000 retail
investors by Toro found that 39% of them
are actively increasing their cash
positions at the minute with the trend
among younger investors being the
highest where 60% are focusing on cash
Holdings higher interest rates on cash
are clearly an attractive proposition
especially if it's from emergency funds
fine but I do worry that younger
investors are seeing higher returns in
cash as an opportunity and not realizing
that at their age it's the very best
time to be taking risk and putting your
money to work in the stock market I
found this bit of research from ERS that
it's a bit of a weird scenario that they
go through that probably is quite
unlikely but I still think it serves to
prove a point perfectly they took an
investing timeline of 100 years from
1923 to 2023 and said if you plunked
$100 at the start and left it what would
it be worth the answer is 85,000 roughly
today okay next they said anytime the
market was at alltime Highs at the end
of the month let's move out our
investments into Cash until it isn't
alltime highs they call a switching
strategy so you switch out of stocks
Into Cash equivalent that you generate
interest on and then you put it back in
when the market has pulled back from the
all-time high essentially you look to
miss the inevitable dip what would that
do to Performance the answer is a 90%
decline in the value of your Investments
over the period with this switching
strategy leading to a portfolio of
$879 with markets at all-time highs and
cash saving rates being the best they've
been in years I can see why investors
might say well I'll just wait and get my
interest here but this cautious approach
fails to recognize that alltime Highs
are very common and that markets tend to
perform well after the market has
reached an all-time high bbka hitting a
world record was not a sign of him
reaching human potential more an
indication that the human species had
the ability to go even higher it's often
typical when a world record is broken
that then it's broken again in quick
succession straight after look at
another set of elite athletes in the
sport of
[Applause]
Tetris I know that sounds like I'm
taking the P but honestly I watched a
documentary on these guys the other days
they are athletes they are doing mic
with Tetris it was thought that the game
was impossible to complete that's until
this teenager did it 34 years after the
game was invented and then just 3 weeks
later two other players have beaten the
game three and a half decades and no one
have come close then three separate
people do it in three weeks alltime
highs lead to alltime highs because it
gives us playing the sport game or
markets the confidence that it is
possible the logic of it's high at the
minute so it will drop soon kind of
doesn't stack up you can see here that
the 12 months following an all-time high
us large cap companies have their best
average performance so in the 12-month
period after the all-time high this is
when on average these companies perform
best being out of the market and waiting
for things to come down means you
potentially miss out on this favorable
Trend I question if people sitting on
all this cash waiting for a crash have
considered the fact that 12 months after
an all-time high tends to be a good time
to be in the market look I think it's
very natural to be concerned when
markets are all time highs that you're
buying at the wrong time but serious
question let's say the market started
tailing down now and did that for 12
months would you then be sat there going
well now's the perfect time to buy this
is what I've been waiting for or would
you just be sitting there going oh god
um I think I'll wait for things to
recover a little bit before I get
involved are your concerns genuine or
are they just born out of fear coming
back to that quote from Peter Lynch
there's always something to wor I
purposely frame that negatively to make
it sound like a negative quote but let
me just play you a section from his
famous speech we stop worrying about it
I there's always something to worry
about in the 50s it was depression and
nuclear war the 50s was the best decade
this Century except for the ' 80s
there's always something to worry about
with investing something that you can
point to to convince yourself to not
participate threats of nuclear war
famine oil prices LZ trust let's not
make the fact that the markets are doing
better than they've ever done before one
of those things people have been asking
this question now for decades I mean
just on YouTube alone you see videos
stretching back years trying to answer
the current market high at the time was
a good time to buy the answer is we sit
here today at current alltime highs was
of course yes it was a good time to buy
there will be periods of
underperformance of course there will be
periods when the value of your
Investments Falls versus what you've put
in and you might go years between new
all-time Highs but eventually we will
hit new all-time highs records will be
set Sergey bubka's Legacy his impact on
the sport of pole vating sits there for
all to see a period of complete
dominance as one man Rose above his
sport to become a towering figure in
post Soviet Ukraine one of the greatest
athletes of all time but as is so often
the case what follows New Heights can
often be Great Falls bubka's record in
the eyes of the Ukrainian people has
been tarnished by his connections to
Russia a name that once represented
freedom and potential now sits in the
mud but what of bubka's Records remember
this man was so dominant that his
competitors saw it as almost pointless
to compete so was that it was that the
summit of the
sport I don't think so speaking of World
Records
dtis is it on oh that's ridiculous the
current world record for the pole vault
is 10 cm higher than bubka ever achieved
and do we think it will stop there do we
think the athletes the markets or even
the human species won't just keep
finding ways to raise that bar on marks
get
set go
the market started to rally and rallied
sharply to take the world
[Music]
title packages of 10 and 50
million could we see a world record
they're ahead of world record where do
you think the upturn will stop
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