A few weeks ago we started a series of podcast episodes dedicated to debunking popular misconceptions around investing. In today’s episode, we’re continuing that discussion by covering another investment myth: that it’s too dangerous to invest new money at market highs. Buying low and selling is an obvious objective for any investor, but avoiding the markets simply because they’re breaking new highs is a common mistake for many. Throughout the episode, Grant dives into why this concept is a myth and data from a few studies conducted by reputed organizations that show the potential dangers of the delay in waiting till the markets fall.
[04:56] Historical Data – We often use historical data to assist our investment decisions. While it is a good starting place, it comes with a lot of shortcomings. Grant reviews why we need to look beyond historical data to make savvy investment decisions.
[06:33] Study on S&P 500 Returns – Grant dives deep into a study that analyses the returns of the S&P 500 companies right before the dot com bubble crashed and after the market crash.
[11:13] Investing on Random Days vs. All-time Highs – Last year, the investment firm JP Morgan conducted a study to compare the returns of investing on any random day versus selectively investing only on the days when the markets reach certain points. Grant dives into the findings of this study and how they relate to the misconception.
[16:20] Risks – The risks associated with investing in financial markets and some of the methods we can use to mitigate the risks and the limitations.
[18:31] Looking at a Wider Dataset – Grant reviews a chart from Dimensional Fund Advisors, which uses a wider data set, a total market index, and a longer time period than the previous studies. He shares his thought on why this chart contradicts the other two studies and what investors can learn from it.
[21:23] Dividends and Distributions – How dividends and distributions can reduce the impact of a market crash and significantly increase your returns if the markets do not crash.
[24:37] Dollar Cost Averaging – How dollar-cost averaging helps us reduce risks associated with investments.
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