If I'm a long term investor, buying a stock or ETF at its higher price, does it matter? - Seedly
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Anonymous

Asked 3w ago

If I'm a long term investor, buying a stock or ETF at its higher price, does it matter?

Just wondering if the price matters for long term investor, in which the stock or etf is at higher price than usual, does it matter? or no diff for long term investor?

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Rex R. Wei
Rex R. Wei
Level 3. Wonderkid
Updated 2w ago

Have a look at this amazing Matrix Book from 2019 by Dimensional Fund Advisors.

http://static.fmgsuite.com/media/documents/dfa8e2eb-70a8-4830-bbab-2e967cef3871.pdf

What the above shows is that no matter when you enter the market, if you could stay invested, you'll most likely be rewarded. The question then becomes how much you're paper losses and paper gains that you're willing to tolerate. If you're heading towards retirement, you will need to start thinking about sequence of return risk. But I assume you're nowhere near retirement just yet.​​​

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Jerry Tay
Jerry Tay
Level 3. Wonderkid
Answered 2w ago

Dollar-cost averaging in the index is the best way to go about investing safely in the long term.

When we talk about the market going up, we are referring to the S&P 500 index.


Here is a summary of why it will always go up in the long term

  1. Inflation
  • In 20 years, companies will price their products higher, for example, a big mac will be priced more, causing increase revenue which leads to higher market prices for stocks
  1. Population growth
  • More people in the world, companies will grow to support it, therefore increase revenue and profits leading to an increased price in the index
  1. 500 companies in the index are best of the best
  • A moment a company is not a market leader, it is replaced by another profitable company

  • Eg. GM, they used to be in the dow jones, but now they are kicked out because they are no longer good company

  • With the best companies in the index, the market will always grow higher

  1. Technology
  • Over time, businesses will become more efficient as technology improves leading to increased profits

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megadisc

2w ago

Thank You!
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Frankie Rappaport
Frankie Rappaport
Top Contributor

Top Contributor (Aug)

Level 9. God of Wisdom
Answered 2w ago

The longer you hold (recommended 20 years or more) the more one time trading fees or buying at "high" price average out

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Gideon Ng
Gideon Ng, Blogger at FI Pharmacist
Level 6. Master
Answered 3w ago

Hi Anon,

The markets will always go up, but only in the long term. So even though the price that you have paid for the stock / etf is slightly higher than normal, it won't really make much of a difference in the long term. If you leave your money in the market for a longer period of time, it will go through all these short term volatilities and help you to earn better returns in the end.

If you are investing for the long term, the most important thing is to not be swayed by your emotions! Checking your stocks everyday will make you really stressed, especially if the price of your investments are going down.

One way to curb your emotions is by dollar cost averaging. When you use the same amount of money to invest at a fixed interval, the price doesn't really matter. You will buy more units of the stock when the price is low, and you will buy more units of it when the price is high. Ultimately, the average price of the stock you bought should be somewhere in between the highest and lowest prices that you bought it for.

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Oh Yi Ning
Oh Yi Ning

2w ago

Hey Lester, one of the reasons being is because of company expansion, especially for tech related companies. The Long term go up trend Often applies for technology weighted indices and this is due to the aggressive company growth which results in investment pouring in. You will not see This trend in the STI, for example.
Jovan Lai
Jovan Lai

2w ago

Hi Lester, there are many reasons that affect stock prices and cause it to go up. I’ll just list the main ones. - Company does well, the stock does well - Peter Lynch. One up on Wall Street is a good read. Essentially he is reminding us that behind every stock is a company, stocks are not lottery tickets. This is true as well for index funds/ETFs that are a basket of companies. - 3 things Warren Buffett himself replied when someone asked why do stocks go up. 1. Inflation - naturally 2. As Prices go up, it invites more buying - people are naturally attracted to investing into something after seeing the stock doing well. However, do remember these are past performances and looking at stock prices is not investing. 3. Low interest rates - they work like gravity. Lower interest rates encourages spending and inflationary effects. The attractiveness of keeping cash in banks or bonds become less attractive as well and people are more likely to move money into stocks. Nowadays there are many investors that do passive investing and DCA into ETFs and index funds. This constant inflow into the market provides cash flow for prices to increase Hope this helps (:
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Daniel Kok
Daniel Kok
Level 5. Genius
Answered 2w ago

Hey Anon!

the best way is to put in funds periodically, to average out the costing so be it high or low, you'll be purchasing units.

Read this tip which is my favorite so far "time in market is better than timing the market". And I guess this works well for long term investment. :)

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Jovan Lai
Jovan Lai

2w ago

To follow up on that, say you DCA into the S&P500 at the start of March and your interval is every 3 months, your next investment will be in June. You would’ve missed out on all the Low prices during late March -May. Ofc the shorter your time interval the close to average. But even if you were to invest Every trading day, intraday fluctuations will cause you to not get the “true average”. I’m not discouraging DCA, it is a proven and wonderful strategy, just want to point a misconception(:
Jovan Lai
Jovan Lai

2w ago

Sorry somehow the app has a limit to how many words I can type. DCA is 1 way of investing, it’s arguably the best way to passively invest, but I will strongly disagree it’s the “best” way to invest overall
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Jovan Lai
Jovan Lai
Level 5. Genius
Updated 2w ago

Hi, prices of which you buy at definitely do matter as they affect your return on investment.

Higher prices also exposes one to more risk. Intelligent investor is a good read.

"An intelligent investor realises that when the stock price is high, risk increases Not decreases. When the stock price is Low, risk decreases, not increases." Benjamin Graham.

"A great company at the wrong price can be a horrible investment." Warren Buffett and Charlie Munger have said this multiple times in interviews.

Ultimately, it is very tempting to just jump at our favourite stock picks but we have to remember that prices affect our returns and risk. Thus, being patient is an essential attribute an intelligent investor must develop. Even if we buy at high prices, you are right, over Long periods of time it can become profitable. However, we must remember the opportunity cost. Waiting 10 years for a 20% return is different from waiting 2 years for a 20% return.

There will always be opportunities in the market, expanding our circle of competence and opening up our minds to other companies may surprise us of great investments we may find.

Hope this helps(:​​​

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Max Soo
Max Soo
Level 3. Wonderkid
Answered 2w ago

Hello! To put it matter of factly, sure it'll matters since if you can get it at a lower price, you would definitely stand to gain more if the share price continue soaring. Likewise you won't lose as much if the price drops.

Nevertheless, it would be impossible for us to time the market and try to buy in at a 'lower' price. We'll simply never know how low is low. There are some valuations we could do to see if the stock/ETF we are purchasing is fair-valued/cheaper. If it is and you believe the share price will continue heading upwards, we can proceed to purchase it and hold long term as long as the fundamentals of the company is sound.

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Shaun WQ Lim
Level 8. Wizard
Answered 3w ago

If you continue to do periodic investments into the stock or ETF over a long time, the price will average out. It could be higher or lower.

More importantly is that the price movement trends upwards over time.

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megadisc

2w ago

This is so helpful 👍
Thank You!
Can you clarify
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