Here at Northwestern, we like to pride ourselves on our business acumen, our ability to plan ahead in what is increasingly an awful economy, and of course, our crazy parties. Well, perhaps not so much that last part, but certainly the first two. So, as anyone who has been watching the stock market in the past two months since the S&P downgrade could tell you, Northwestern finance students are feeling a little more than down on their luck as some of their best invested plans come crashing down.
With record breaking dips in that time period, many analysts believe stocks could fall even further. A default in Europe (looking at you, Greece) could prove to be another crippling blow for a global economy with enough broken bones already.
Still, research has come to light suggesting that waiting for these low periods isn’t time to invest. In fact, dips in the market come at near-record highs, according to analysts at the Vanguard Group. In other words, I could buy a book at the Norris bookstore for half off and only have to pay 200, but that doesn’t mean that they’re not ridiculously expensive in the first place. Going deeper into this intuition, the Efficient Frontier Advisor investment group has shown still more interesting patterns. For instance, if you had bought a Vanguard 500 fund exactly ten years ago, you would have paid 77.22 (inflation included). Waiting for, say, a 2% drop in the market? The average price for all 137 such events is 82.82 – so still higher. The 13 5% dips in the market in that time period seem more conservative, but the average price is still 78.39. This, of course, isn’t counting all the gains you could have gotten by investing sooner to begin with.
What does this mean? Waiting for these lows might not be the best choice compared to being able to invest sooner. That doesn’t mean don’t buy low, of course. We can’t [yet] go back in time, so with no way to get those old lows, might as well settle for the current ones. Sometimes, however, it’s just better to buy into the market instead of waiting a long time for record lows.