You've saved up a meaningful amount of cash, maybe from a bonus, an inheritance, or the sale of a home. You know you should invest it. But every time you look at the market, it seems to be near a record. So you wait for a pullback. And you wait. And you keep waiting.
This is one of the most common dilemmas in online investing forums, and it's easy to see why. Nobody wants to invest a large sum on Monday and watch it drop on Tuesday. But understanding what's driving that hesitation can help you make a decision you feel good about.
The Psychology of "Too High"
Several mental shortcuts tend to converge when markets are near highs:
- Anchoring. We fixate on a past price, perhaps where the market was a year ago, and treat today's level as "expensive" by comparison, even though a past price doesn't tell us much about the future.
- Regret aversion. The pain of investing right before a decline can feel far worse than the pain of missing out on gains. So we avoid the action that might lead to regret, even if inaction carries its own costs.
- Recency bias. Whatever happened most recently, whether a rally or a selloff, feels like it will continue.
It's worth remembering that markets have reached new highs many times over the long run. A high on its own isn't a reliable signal that a decline is coming next.
The Cost of Waiting
Cash feels safe, and having an appropriate cash reserve is important. But money that's meant for long-term goals and stays in cash indefinitely faces its own risks, chiefly that inflation can erode its purchasing power over time and that the hoped-for "better entry point" may never arrive, or may arrive at a level higher than today.
There's also an emotional cost. Every day spent waiting adds another round of second-guessing.
Lump Sum vs. Gradual Investing
Investors facing this decision typically consider two approaches:
Investing all at once. Putting the full amount to work immediately means the money is invested according to your plan right away. Because markets have historically risen more often than they've fallen over long periods, this approach has often had the edge, though past performance is no guarantee of future results, and it can feel uncomfortable if a decline follows soon after.
Investing gradually (dollar-cost averaging). Spreading purchases over a set schedule, such as monthly over six or twelve months, can reduce the impact of poor timing on any single purchase and, perhaps more importantly, can reduce the anxiety that keeps people from investing at all.
There's no universally "right" answer. The best approach is often the one you'll actually follow through on. A plan that's mathematically appealing but emotionally unbearable tends to get abandoned at the worst possible time.
A Few Practical Guardrails
If you're stuck, these steps may help you move forward:
- Clarify the purpose of the money. Funds needed within a few years may belong in more conservative options. Long-term dollars can generally tolerate more ups and downs.
- Set a schedule and automate it. If you choose to invest gradually, decide the amounts and dates in advance and set them up to happen automatically. Removing the in-the-moment decision removes much of the stress.
- Revisit your allocation. If you're nervous about volatility, the answer may be a more balanced mix of investments, not staying in cash.
- Write down why you're investing. A short note to your future self can be a helpful anchor if markets turn choppy right after you start.
When Waiting Becomes the Plan
One sign that hesitation has become a problem is when the conditions for investing keep changing. First it's "after the next pullback," then "after the election," then "once interest rates settle." There will always be a reason to wait, because there's always uncertainty. If you notice your criteria shifting, it may be time to set a clear, specific plan and let it carry the decision for you.
The Takeaway
Waiting for the "perfect" moment is understandable, but perfect moments are only obvious in hindsight. What matters more is having a thoughtful plan that matches your goals and your temperament, and sticking with it.
If you have cash on the sidelines and aren't sure how to put it to work, we'd be happy to help you think through the options.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. All investing involves risk, including possible loss of principal. No strategy assures success or protects against loss. Dollar-cost averaging involves continuous investment in securities regardless of fluctuation in price levels. Investors should consider their financial ability to continue purchasing through periods of low price levels. Dollar-cost averaging does not assure a profit or protect against loss in declining markets. Past performance is no guarantee of future results.