The Stock Market Is Expensive, But Don’t Wait Until It Gets Cheaper

The U.S. stock market looks expensive. Don’t wait until it gets cheaper.

“We recommend against staying on the sidelines, even when markets are at record highs,” says UBS Global Wealth Management CIO Mark Haefele. “Time in the market is important to achieving financial goals.”

Personally, I have been looking at this for months now. I’ve wanted to get into the tech gold rush, even through ETFs. ARK Innovation (ARKK) ARKK was my target. It’s Tesla TSLA heavy, so I thought it was just too expensive. I’d be chasing a runaway train and as soon as it stopped I’d be flattened, running face first into the caboose. Had I bought it three months ago, I would have realized a gain of 54.75%, nearly double that of the Nasdaq NDAQ .

(Face palm.)

Stocks are being fueled by Fed support. Research shows that entering the market all at once has historically offered the best outcomes—even at record highs — rather than dipping in. Subsequent 12-month returns have averaged 12% since 1960.

I’m still going to dip.

August was a strong month for stocks. The S&P 500 rose 7%, its best August in 34 years. The Index has been up for at least five straight months, annoying the Wall Street haters who don’t understand how the market can rise even though the economy has been effectively shut down, or partially shut down, over that period due to the pandemic.

The 56% rally from its March lows have been driven by a few tech stocks, but that’s not all. Some post-pandemic coronavirus trades are doing well in the last three months. The Cheesecake Factory CAKE is up 43%. X-Trackers China CSI-300 (ASHR) ASHR is still up, now at 30% since June as the country comes down from its SARS 2 outbreak.

Retail investors may still be worried that the pandemic will come roaring back, the government stimulus checks won’t come, and the presidential election will send markets into a tailspin, messing with market timing for those thinking short-term.

“Investors are turning their attention back toward Washington, monitoring closely the prospects of a new round of stimulus that could inject even more cash into the economy,” notes Jason Pride, CIO of private wealth at Glenmede.

Given the recent examples of the high opportunity costs of sitting on the sidelines, UBS’ Haefele says that, at the very least, investors can take a defensive approaches to picking stocks. That doesn’t mean investing in utility companies. It means averaging-in risks, buying on the dips, instead of going all in all at once in order to buy at different price points.

“Investors looking to protect against the risk of bad timing, an optimal strategy is dollar-cost averaging their planned allocation to riskier assets,” says Haefele. “Establish a set schedule—generally within 12 months or less—to reduce the cost of missing out on gains.”

If the market falls 5% or more, buy it.

China may be at risk in a Trump victory, but is seen gaining even more in a Biden victory as he is expected to end tariffs.

Recently, a reform-minded Chinese think tank called on Beijing to counter U.S. decoupling efforts by reforming and opening up its markets. This week, trade ministers from Japan, India and Australia discussed a joint “supply chain resilience initiative” to counter China’s regional dominance, Bloomberg reported.

U.S.-China tensions will likely worsen until November, which doesn’t only have implications for the A-shares market — China’s stocks listed in Shanghai and Shenzhen — but for companies that are dependent on China and may face retaliation for policies currently gunning for major tech names like Huawei, Tencent’s WeChat messaging app, and ByteDance’s TikTok.