Episode summary
What If You Only Invested at Stock Market Peaks? Or Invested at Stock Market Bottoms?
Summary
The host argues that buying at market extremes matters a lot in the short run, but much less over longer horizons. Using historical data, he says investors who caught the bottom of the U.S. market earned far more than those who bought at the top, especially over five-year periods, though the gap narrows over 10 and 20 years. He extends the same framework to global and non-U.S. stocks and finds that expensive starting valuations have historically led to weaker forward returns.
He then breaks stock returns into their components: dividends, earnings growth, and valuation change. Over the past decade through September 2026, U.S. stocks delivered about 15% annualized, driven mainly by earnings growth, while non-U.S. stocks returned 9.3% annualized. The host says U.S. profit margins are at their highest level since 1966, helped by productivity gains that have not been fully matched by real wage growth.
Using that same building-block approach, he says future returns should be lower than the past decade. He estimates a 5.8% annualized return for a Vanguard target retirement 2045 fund and uses a simulation to show how $50 a week could compound to a median of $94,000 over 21 years, with wide variation depending on market outcomes.
Key takeaways
- The host says buying U.S. stocks at a peak can badly hurt 5-year returns, but the penalty shrinks over 10 to 20 years.
- He argues current U.S. valuations are in the priciest quintile, which historically has meant lower real forward returns.
- Non-U.S. stocks are less expensive today, and the host says that supports overweighting non-U.S. equities relative to the U.S.
- The host says the biggest driver of the last decade’s U.S. stock gains was earnings per share growth, not dividends or valuation expansion.
- For a 2045 target-date fund, the host estimates a 5.8% annualized return and about 13% volatility.
- At $50 a week, the host’s simulation produces a median ending value of $94,000 after 21 years, with a 43% chance of reaching $100,000.
Notable quotes
“if you can catch the bottom or if you unfortunately catch the top, the return differences are pretty substantial, especially over 5-year periods”
“right now we're at the the priciest point. So our expectations for stock market returns going forward. Again, this is US stocks. We'll look at non US in a minute. They should be lower”
“US profit margins are at its highest level since 1966 at a 18.8% profit margin”
“The median was 94,000. So after 21 years, invest $50 a week, put it in a target date fund like this, median is $94,000”
How the episode opens
What would happen if you only invested at stock market peaks? Let's find out. I'm David Stein.
This is Money for the Rest of Us. This is a personal finance show on money, how it works, how to invest it, and how to live without worrying about it. Today, we're looking at what actually happens if you catch the very very top of the stock market or the very very bottom of the stock market after a bare market and and start investing.
What is the return difference? What about if you invest when stock valuations are very very high like they are today? How do those returns differ from when you invest when stock market valuations are low?
We're going to take a look at the numbers. Let's first look at what happens when you invest at the absolute peak. Now, keep in mind, nobody knows ahead of time what the peak of the stock market will be or when the bottom is hit.
that if we could see beforehand when those periods occur, what would the returns be? Well, not surprisingly, if you can catch the bottom or if you unfortunately catch the top, the return differences are pretty substantial, especially over 5-year periods. or US market the difference is 16.9% annualized compared to all months investing in the US stock market going back to 1970 10.2% annualized you would have earned zero over the 5-year period if you if you caught the market at the at the top but we go out 10 years the difference isn't quite as big if you caught the bottom 13.6% 6% annualized and if you caught the top 5.7% annualized and then if we go out 20 years the return differential is even smaller.
Catch the bottom 11.4% annualized for the US market 7.6% annualized if you caught the the top and so about a 4 percentage point annualized difference.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- stock market peaks vs bottoms
- long-term stock returns
- valuation cheap vs expensive
- dividends and earnings growth
- target date funds downturn risk
Watch the episode
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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Money For The Rest Of Us, this episode and its artwork belong to J. David Stein. Octagon is not affiliated with the show; this page is an independent summary.
