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Podcast Summary

Optimal Finance Daily – Ep. 3291: [Part 1] "Why You Should Invest, Even in Peak Markets" by Chelsea of Smart Money Mamas

Overview of the Episode

In this episode, host Diania Merriam narrates part one of Chelsea Brennan's article from Smart Money Mamas, delving into the perennial question: “Should you invest when the stock market is at an all-time high?” Chelsea breaks down the logic and discipline behind investing during market peaks, dispelling the myth that you need to "time the market" to succeed. Through storytelling, data, and personal reflection, Chelsea encourages listeners to focus on long-term, disciplined investing—even when fear and uncertainty are at their peak.

Key Discussion Points & Insights

The Temptation to Time the Market

Market Highs and Anxiety (01:23)
- Many readers wonder if it's better to hold off investing when the stock market is hitting record highs.
- Rising interest rates and warnings from pundits about imminent downturns contribute to hesitation.
The Pitfalls of Market Timing (02:05)
- Chelsea clarifies: by waiting for a downturn, you're essentially attempting to time the market, which is notoriously difficult.
- Quote:
  
  “Timing the market is just as hard as picking stocks, but that's exactly what you're doing if you're holding onto cash and waiting for a market downturn.”
  (Chelsea, 01:55)
Reality of Market Predictions (02:41)
- There's always someone predicting a crash; eventually, someone will be right, but no one knows exactly when.
- Quote:
  
  “In every market, it isn't hard to find a Chicken Little… Eventually one of them will be right, but none of them know when that is.”
  (Chelsea, 02:45)

The Cost of Sitting Out

Historical Examples (03:25)
- Chelsea provides examples from 2014 and 2016 where those listening to naysayers missed out on significant gains:
  - In 2014: Investors who stayed out missed a 7.8% annual return (or 9.8% with dividends).
  - In 2016: Avoiding the market cost investors a 17.8% return (or 19.7% with dividends) in just one year.
- Quote:
  
  “If you had listened to the naysayers and pulled your money out of the market... you would have missed out on a 7.8% annual return, or 9.8% if you reinvested dividends between now and then.”
  (Chelsea, 03:52)
Cycle Reality (04:39)
- Chelsea acknowledges that markets eventually decline, but waiting often means missing more upside than downside.
- Time spent out of the market is typically lost opportunity for growth.

The Power of Time and Dollar Cost Averaging

Dollar Cost Averaging and Lump Sum (05:00)
- Regardless of market timing, investing regularly (dollar cost averaging) builds discipline and gets your money working.
- Chelsea distinguishes between investing incrementally as money is earned versus delaying a lump sum.
- Citing Vanguard research (1926-2011), 65-67% of the time, lump sum investing outperforms dollar cost averaging over 10-year periods.
- Quote:
  
  “What they found was that regardless of asset allocation, 65 to 67% of the time, you would see stronger returns putting the money in the market today than trying to smooth things out by leaking it in over time.”
  (Chelsea, 06:00)
Inflation Erosion (05:20)
- Money sitting in cash loses purchasing power each day due to inflation; investing puts it to work.
Investing is Long-Term (06:45)
- “The long term trajectory of the market is up. The more time your money is in the market, the better you do... time heals all wounds.”
- The key to long-term investing success is to stay the course through market cycles.

Emotional Decisions & Fear (Part 2 Brief)

Fear as a Barrier (08:33)
- Chelsea shares a personal pandemic-era mistake: holding 401k contributions in cash (money market) out of fear, missing gains as the market recovered.
- Even financial professionals aren't immune to fear-based missteps.
- Quote:
  
  “Ironically, the fear of losing money may cause us to make decisions that lead to actually losing money.”
  (Chelsea, 08:39)
  "It's never a good idea to make a financial decision out of fear."
  (Chelsea, 09:27)

Notable Quotes & Memorable Moments

| Timestamp | Speaker | Quote | |-----------|---------|-------| | 01:55 | Chelsea | “Timing the market is just as hard as picking stocks, but that's exactly what you're doing if you're holding onto cash and waiting for a market downturn.” | | 02:45 | Chelsea | “In every market, it isn't hard to find a Chicken Little… Eventually one of them will be right, but none of them know when that is.” | | 03:52 | Chelsea | “If you had listened to the naysayers and pulled your money out of the market... you would have missed out on a 7.8% annual return, or 9.8% if you reinvested dividends between now and then.” | | 06:00 | Chelsea | “What they found was that regardless of asset allocation, 65 to 67% of the time, you would see stronger returns putting the money in the market today than trying to smooth things out by leaking it in over time.” | | 08:39 | Chelsea | “Ironically, the fear of losing money may cause us to make decisions that lead to actually losing money.” | | 09:27 | Chelsea | "It's never a good idea to make a financial decision out of fear." |

Important Segments With Timestamps

Market Timing Myth Debunked: 01:23 – 02:41
Real Market Missed Opportunities: 03:25 – 04:25
Power of Time & Lump Sum Investing: 05:00 – 06:30
Emotional Investing & Personal Story: 08:33 – 09:30

Final Takeaways

Consistent investing beats waiting for market lows.
Lump sum investing performs better than dollar cost averaging most of the time.
Fear leads to lost opportunities—discipline is key to long-term investing success.
Market cycles are inevitable, but data shows staying invested is typically the best choice.

Stay tuned for Part 2, where Chelsea digs even deeper into the consequences—and surprising results—of investing right before past market peaks.

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Transcript5 lines

[00:01]
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[01:24]
Chelsea from Smart Money Mamas
This is Optimal Finance Daily why you should invest even in peak markets part one by Chelsea of smart moneymamas.com with the US stock market continuing to hit new highs, I've been asked by some readers if they should wait to invest in the stock market. Interest rates are rising, we are over eight years into a bull market, and some pundits are starting to call for the next downturn. People are worried about investing at the peak of the market, so they're holding off. But they really shouldn't be. In today's post, I'm going to break down why you should still be investing in peak markets. Timing the market is just as hard as picking stocks, but that's exactly what you're doing. If you're holding onto cash and waiting for a market downturn, you're betting that the pullback will more than compensate you for the lack of return while your money sits in cash. You're also betting that you'll have the discipline to put the money in when everyone else is taking it out. So what's the problem with making that bet? You could be wrong. In every market, it isn't hard to find a Chicken Little someone running around telling you that the sky is falling, the market's gonna crash and you need to get out now. Eventually one of them will be right, but none of them know when that is. On August 26th of 2014, the S&P 500 closed above 2000 for the first time. At the time, plenty of people were there to say that valuations were too high, the underlying economy wasn't strong enough, and we would see a downturn in the near term. Some claimed that even if the economy improved, stocks would have to drop by about half to see normal rates of return in the next cycle. But if you had listened to the naysayers and pulled your money out of the market of August of 2014, you would have missed out on a 7.8% annual return, or 9.8% if you reinvested dividends between now and then. Then In February of 2016, when the bond markets were under significant pressure, many people thought we were seeing the beginning of the next market downturn. If you had listened to the naysayers and pulled your money out of the market in March, you would have missed out on a 17.8% return or 19.7% if you reinvested dividends over the following year. If you hold onto your cash long enough, eventually you'll see the market decline. That's how cycles work. But just because you were eventually right doesn't mean you didn't miss out on a lot of growth in the waiting. Which brings me to my next point. Time is money. I've written about dollar cost averaging and why I love it as an investment style. Investing on a regular basis without concern for price is a great way to create discipline in your investment methodology and get your money to work in the market quickly. Every day your money sits in cash, you are losing value. Your checking or savings account doesn't compensate you for inflation. So the hundred dollars in your checking account today is worth less next year. If I had $100 to invest a month, I would invest it every month instead of waiting until I had $1200 at the end of the year. However, if someone handed me $1,200 today, I would invest it all now instead of bleeding it in over 12 months. Even though traditional dollar cost averaging would recommend bleeding it in. And according to Vanguard, the majority of the time I would see better performance. Vanguard looked at rolling 10 year periods in the US stock market from 1926 to 2011 and back tested the performance of lump sum investing versus dollar cost averaging. In other words, would you do better investing a certain sum of money today or bleeding it in over 12 months? What they found was that regardless of asset allocation, 65 to 67% of the time, you would see stronger returns putting the money in the market today than trying to smooth things out by leaking it in over time. The reason for this is that the long term trajectory of the market is up. The more time your money is in the market, the better you do. So what about the 35% of the time where it's worse? What if you're the unluckiest person in the world and this really is the market peak History says now is almost always better than later. Investing is a long term game and in most cases time heals all wounds. The secret is to hold strong through market cycles and not take your money out of the market as things get bad. However, it is incredibly hard to keep running forward when the herd is scrambling out. So to provide some motivation for you to invest and hold strong, I took a look at the last 10 market cycles. How would you have done if you invested your money on the peak day before the market turned? To be continued. You just listened to part one of the post titled why you should invest even in peak markets by Chelsea of smartmoneymamas. Com. This message is brought to you by Apple Card. If you're like me, you might be considering getting a new iPhone, but have you considered upgrading your credit card? When you use your Apple card with Apple Pay or the laser etched titanium Apple Card, you can earn unlimited 3% Daily Cash back on everything you buy from Apple, whether it's a new iPhone, an iPhone case, or even a service like Apple Music or Apple TV. Earning 3% back on the Apple products and services you love. It's an easy decision. You'll only wonder why you weren't doing it sooner. Subject to credit approval, Apple Card issued by Goldman Sachs Bank USA Salt Lake City Branch terms and more at applecard.com.
[08:03]
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[08:33]
Chelsea from Smart Money Mamas
Fear is a strong, influential emotion when it comes to money and none of us are immune to it. I think one of the biggest hurdles to consistently investing is the fear of losing money. And ironically, the fear of losing money may cause us to make decisions that lead to actually losing money. So, for example, at the start of the pandemic in 2020, many corporations were struggling, including my employer. At the time, I was lucky in that I wasn't furloughed, but I did take a 10% salary reduction and my employer stopped all 401k matching. It felt like the writing was on the wall. I was probably going to lose my job and it could take me a long time to find a new one. So while I continued to make my regular 401k contributions, rather than investing that money, I held it in money market. I rationalized that this would be a backup emergency fund as I could have taken a Covid related distribution with no penalty and I'd have three years to pay the tax on it if I really needed to. And I shouldn't invest this money because obviously the economy was going to collapse due to Covid. Well, that didn't age well. Now I understand in the moment it felt like an unprecedented time and the apocalypse was upon us. But I didn't end up investing that money until late 2020. And so I lost out on a number of months of investment gains and I simply didn't need to hoard this money. I already had a year of living expenses in cash. In fact, just eight months after I made this fear driven decision, I decided to leave my job voluntarily because it was clear that I had the financial bandwidth to do so. The point I'm trying to make is that it's never a good idea to make a financial decision out of fear. Well, that should do it for today. Have a happy rest of your day and a great weekend and I'll see you in tomorrow's show where we'll finish up this post and where your optimal life awaits.