Buy low and sell high. You have probably heard that said a hundred a thousand times in your life.
The question becomes, how do you do that?
How do you know when it’s the highest point to sell?
How do you know when it’s the lowest point to buy?
Unless you’re hiding some crystal ball, we will never know the exact high or low.
We have to keep this in perspective. Yes, we want to buy low, we want to sell high, but we need to look at it in relative terms.
If you have been invested in the market for the past 5 years to 10 years, you have probably had substantial gains during that period.
So we’re not at the high where we were in February, but we are still at a high. Looking at the S&P 500 index, it has returned (approximately) 16% for the last 3 years, 33% for the last 5 years, and 125% for the last 10 years.
It’s still at a high, it’s not at the highest, but it’s at a high.
Remember, think in relative terms.
The same goes for buying low. Yes, it is lower than it was, but could it go lower?
When we think about whether we should buy or sell, we don’t want to make that decision on an island.
We all have four areas of our financial life: tax planning, cash flow management, which also includes your retirement income, investment positioning, and estate preservation.
Buy low and sell high is about investment positioning, but what we do in investments affects other areas of our financial life. It can affect our taxes and it can also affect your retirement income. This is especially important to think about if you’re retired or you’re planning to retire in the next few years.
You need a coordinated plan with all areas of your financial life.
The next time you hear or think about buying low and selling high, stop and consider the circumstances.
And don’t make a decision on an Island, think about how all areas of your financial life could be impacted.
If you want to talk through this with us, schedule a call, we are here to help!