Stock markets inevitably rise and fall. Crashes, corrections, and recoveries are often short and sharp; and sometimes bull and bear markets can last for many years. Some investors try to time the ups and downs, but all the evidence suggests it’s a bad idea. So, what’s the alternative? A new book by financial adviser and data scientist NICK MAGGIULLI says the simplest answer is to “just keep buying” and weather the storm every time the market falls.
In this part of this two-part interview with TEBI’s Robin Powell, Maggiulli explains that while the strategy isn’t absolutely guaranteed to work, for most investors it really is the most rational approach.
Just Keep Buying
NM: If I were to give you only three words to help you build wealth, I would say “just keep buying”. But of course there are a lot of other decisions you’re going to have to make along the way. I say this in the introduction. “Just keep buying” is great on its own: there’s tons of evidence for it. At the same time though, that’s not sufficient. There are a lot of other things that you’re going to have to consider.
It does, assuming there’s an eventual recovery in markets.
Most markets recover.
The key is to buy income-producing assets.
Automate as much as you can.
The danger is saying that you won’t buy stocks at all until they come down. For example, I started writing about the “just keep buying” approach at the beginning of 2017. In the comments, people were saying, “You say that, but look how high valuations are.” But the market is up massively since then.
Even if you had waited in cash, and even if you knew there was going to be a crash on March 23rd, 2020, you would have bought at a higher price than if you’d just bought in early 2017. Instead of buying dips, you should just keep buying regardless of whether there are dips or not. If you wait for the dips, you’re more likely to buy the dip when the price is much higher. The data bears that out as well, and I explain in the book.
As my colleague Michael Batnick always says, there’s always reasons to sell. He has this great chart he does, where there’s the US stock market since 2010 and it’s just going up and up. And he annotates all the different crisis events on that chart.
At any point in time, you can find a reason not get invested. Obviously, at some stage, there’s going to be a time when the doubters who say you shouldn’t buy are going to be right. But it’s been a long time and I’ve been hearing those people say this for a long time. There’s been permabears since 2010 saying, “Don’t buy, don’t buy, don’t buy.” And yet markets are up hugely since then, and people are still saying “don’t buy”. You can play that game, but you’re probably not going to make a lot of money doing that.
I say you just shouldn’t worry. We’re going to have bad times. At some point, there’s going to be a market crash. There’s going to be a bad decade. Who knows? For example, 2000-2009 was one of the worst decades for US stocks, but it was good for international markets.
These things happen and they’re outside of your control so trying to make market timing decisions is very likely going to get you in trouble. Say you move to cash now, and the market crashes. You’ll be thinking, “Look, I’m so smart.” But guess what? One day the market is going to recover, and you’re still going to be in cash. So you’re going to lose more in the long run than if you just keep buying. Maybe you can get it right now, but you’re going to get it wrong many times in the future. The data has shown that over and over and over again.
In the second part of this interview, Nick Maggiulli discusses saving and budgeting. He also identifies what he calls “the most important asset of all”… and it has nothing to do with money. by Nick Maggiulli is published by Harriman House.
Picture; Andrew Ling via Unsplash
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