Asked 3w ago
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?
Have a look at this amazing Matrix Book from 2019 by Dimensional Fund Advisors.
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.
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
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
The longer you hold (recommended 20 years or more) the more one time trading fees or buying at "high" price average out
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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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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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(:
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.