Don’t Be Afraid to Buy at the Highs | ETF Trends

The conventional wisdom of equity investing is “buy low, sell high.” For many investors, it’s often easier said than done. However, many market participants are programmed to at least attempt to sell high. Then, they buy when stock benchmarks are at or around records is a concept that doesn’t get much attention.

It should. Particularly these days when the S&P 500 has hit a series of all-time highs just since the start of this year. The index’s year-to-date price action is a reminder that when a new high is achieved, a stop sign doesn’t always follow. In fact, records can beget more records. This indicates that there can be some reward in buying at 52-week or all-time highs.

The Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM) are examples of exchange traded funds that have rewarded investors who bought at a recent highs. The two ETFs have been notching new 52-week highs on what feels like a regular basis as of late. And they’re up 6% year-to-date and more than 40% over the past year.

Selling At Highs Isn’t All It’s Cracked Up to Be

QQQ and QQQM follow the Nasdaq-100 Index (NDX). It’s like any other widely observed equity gauge. Timing its pullbacks and upswings are difficult and it doesn’t move up in a straight-line fashion.

Adding to the case for remaining invested even after new highs are reached is historical data indicating that moving to cash after stocks hit fresh records is not the best strategy.

“$100 invested in the U.S. stock market in January 1926 would be worth $85,008 at the end of 2023 in inflation-adjusted terms, growth of 7.1% a year.” In contrast, a strategy that switched out of the market and into cash for the next month whenever the market hit an all-time high (and went back in again whenever it wasn’t at one) would only be worth $8,790,” according to Schroders.

Alright, so that’s nearly a century’s worth of investing – longer than nearly everyone’s investment horizon. But for those worried about wading into the high-flying QQQ and QQQM over the near term, consider the following. As noted by Schroders, switching to cash when stocks hit new records has been a massive dud of a strategy over the trailing 10, 20, 30, and 50-year periods.

Bottom line: QQQ and QQQM might not set new records on consecutive days all the time. But investors that buy these ETFs at highs could well be rewarded, particularly over time.

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