As we approach new all-time market highs, one fear I routinely hear is a concern over retiring at market highs. It makes sense given that sequence of returns risk is so prevalent early in retirement. If you experience a market meltdown during your first few years in retirement, that’s obviously not a good thing and most certainly not enjoyable. It’s the primary reason I advocate for pairing dividend growth investing with a bucket allocation strategy in an effort to stem the ill-effects of this possibility.
But I recently came across some data that I found surprising in which you may find comfort (if one can actually find comfort in data which I doubt, but I digress).
The research team at UBS recently compared two scenarios based on a single question - is it safer to invest at a random time in the market or when the market is at an all-time high? I view it an equal question to ask, is it safer to retire at a random time in the market or at a market high - hence this post’s title.
In full disclosure, my gut response was a random time, but here’s the data with commentary:
Investing at a random starting point:
Investing at an all-time high starting point:
Let me emphasize something in case you glossed over it with regard to investing at an all-time high: “In just 15% of instances of buying in at an all-time high would an investor have subsequently suffered a “bear market” of greater than 20% falls in their investment.“
A summary thought of this section is as follows:
This sounds counterintuitive. But investors should remember that, for every 2000 and 2007 when buying in at all-time highs was subsequently proven to be a bad idea, there were many more 1982s, 1992s, 1995s, 2013s, and 2016s, when investors were subsequently richly rewarded for taking a leap of faith.
I found this information to be equally interesting and comforting. While I still believe, without question, that you should be prepared to handle the 15% of instances where the investor suffered a bear market upon retiring at an all-time market high, it should at least offer some statistical comfort to those who are about to retire.
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This post is not advice. Please see additional disclosures.