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More than halfway through 2024, a robust bull market is pushing the S&P 500 Index to new record highs almost weekly. With cash earning a steady 5% yield thanks to high interest rates. However, this strategy of waiting for the “perfect moment” to invest is essentially market timing, a practice widely criticized for its inefficacy. Here's why investing now, even with the S&P 500 at record highs, could still be a sound decision in the long term.
Don’t Miss the Bull Market!
The hesitation around investing a lump sum now, especially with the fear of a market correction, is understandable. However, historically, bull markets not only last longer but are also more frequent and offer more significant gains compared to the losses incurred during bear markets. Consider some research from CFRA:
- The average bull market lasts about 14 months, with the longest stretching from 1946 to 1949 for three years and the shortest lasting only three months in 1987 and 1990.
- Conversely, bear markets tend to be much longer, averaging around 60 months. That’s five years of potentially missing out on substantial gains if you remain on the sidelines!
- The gains and losses are not symmetrical. The average bull market sees a rise of 165%, whereas the average decline during bear markets is about 35%. The real risk here isn’t necessarily incurring short-term losses but missing out on years of robust compounding growth.
How to Invest at All-Time Highs
If investing during a period of all-time highs feels daunting, a pragmatic approach is to implement a strategy known as dollar-cost averaging. For instance, if you have $20,000 ready to invest, consider using it to purchase shares of a diversified, low-cost exchange-traded fund (ETF), such as BMO S&P 500 Index ETF (TSX:ZSP), which has a low management expense ratio (MER) of just 0.09%.
Rather than investing the entire sum at once, distribute this investment over a period to reduce the potential impact of volatility. A practical way to do this might be to invest $2,000 each week for the next 10 weeks. This strategy allows you to spread out the investment and potentially lower the average cost per share over time.
Should You Invest $1,000 in BMO S&P 500 Index ETF Right Now?
Before investing in the BMO S&P 500 Index ETF, consider this: The 10 stocks that made the cut could potentially produce substantial returns in the coming years.
Take MercadoLibre, for instance. Since January 8, 2014, a $1,000 investment in the “eBay of Latin America” would have grown to $17,069.60.
The service offers investors an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new investment ideas each month – one from Canada and one from the U.S. Since 2013, the service has outperformed the return of the S&P/TSX Composite Index by 28 percentage points.
