Is the market gonna keep going up? Is a recession or bear market just around the corner?

Focusing on market predictions can be the wrong approach when having fresh cash to deploy. It's more about managing emotions than analyzing trends.

Deploying Fresh Capital In A Bull Market

There’s always the nagging fear of buying at or near the absolute pico-top, especially for risk-averse investors.

The worst-case scenario? Placing that buy order and watching the market plunge right after. Something along these lines haha:

The simple truth is that the best option for deploying fresh capital is to lump-sum. It’s been well studied, here and here, that historically it beats out dollar-cost averaging (DCA). 

Why?

Because the market is generally trending upwards over the long term, so delaying deployment on average means buying at higher levels.

For DCA to outperform lump-sum, it would need to be in a bear market or near its vicinity.

So yeah, that’s the theory.

But usually we want more than just theoretical advice. Otherwise, this wouldn’t be such a common concern for all of us.

This is how I have learned to view the situation:

Are we in a bull market? How long can it last?

Indeed we are ✅

We experienced a brief COVID bear market in early 2020, followed by a strong bull market in 2020 and 2021. This was followed by the rate hike bear market that started in 2022.

Then it took two years to reach a new all-time high in January 2024. 

Continuation of which, we find ourselves in now. 

Ok, cool. So how long can this bull market last?

Remember, nobody knows 😉 

But this is a good take from the Director of Global Macro at Fidelity:

If history and averages are anything to go by, we still have some room to run. Maybe another year or two at least.

But the skeptic in you will look and say “There’s no guarantee it’s gonna play out the same way now.”

Nothing says because the average bull market lasts X years and goes up by Y on average this one will too.

“All those numbers can be meaningless. Correlation is not causation”. As one of my closest friends told me debating this very topic once.

And he’s absolutely right, of course.

But let’s not forget the opposite argument, the bull market can perfectly continue powering higher. That’s the base case until proven otherwise.

And you want to be invested when the market goes up, because that’s when you make money!

If you are not invested during a bull market, then what’s the point? If your scared to deploy into a rising market the odds youll be scared deploying into a crashing market.

When you are at all-time highs its because good things are happening. Not the other way around.

But most people want to avoid getting in just when the party is about to end, at all cost.

I've been in this situation before, of trying to solve for a solution where I get in the water without getting wet.

It doesn’t work. And leads to making a number of mistakes.

Like staying in cash, market timing or then FOMO’ing near the eventual top.

And the classic suckering yourself into investing in complex hedge fund products or “uncorrelated assets” that promise market upside without market downside. In my experience, they often underperform and are full of fees.

Young Investor Takeaways

Dealing with Fear

Debating the deployment of capital into risk markets can be like trying to fit a square peg in a round hole.

You think you need numbers and data to make a thought out decision. But they end up being futile because the conversation is fundamentally about dealing with emotions.

Particularly the fear of seeing recently deployed capital tank. And the need for certainty that this fear won’t materialize.

Acknowledging that overcoming fear is the core issue will lead you to other sorts of solutions. Versus torturing the crap out of data, hours of reading useless financial news and over analyzing the current market environment.

So what approach has worked for me in the past?

First, forget about some fancy product or fund as the solution. Don’t look for an answer regarding where the markets are heading to give you comfort.

Work with an independent financial advisor you can trust. Make a solid financial plan with him and stick to it.

If comes time to deploy and you still have a hard time: Think about what percentage of your capital should stay in cash or T-bills (5%, 10%…) for you to feel comfortable deploying the rest.

This isn't about changing your portfolio allocation but creating a psychological safety net.

If a bear market or crash occurs, you’ll feel less like panicking.. Because you already have a reserve for liquidity needs or to dollar cost average into the bear market at lower prices.

To receive my next article directly in your inbox, subscribe below 👇🦉

Quote of The Day