Where To Invest Extra Money When The Stock Market Is On A Hot Streak

Instead of making regular monthly payments on our student loans (in addition to the minimums), I prefer to let the savings build up in my checking account and then make lump sum payments. While this isn’t the most automated solution, it gives a buffer so that I have more time to think about what I want to do with each chunk of money, every 2-3 months or so.

Well, I’m at another one of these crossroads and it just so happens that it comes at a time when the S&P 500 has increased over 15% in the past 6 months. While I have no idea how to ensure this happens and I don’t try to time the stock market, as a general rule, I want to invest at low points and sell at high points.

So when there’s a big rally, do I really want to be investing after such big gains? It’s possible it will keep going, but it’s possibly there will be a pullback. I have a few options:

Invest Anyway Because I Shouldn’t Try To Time The Market

If timing the market were easy, people would be better investors and more people would sell at the top and buy at the bottom. But in reality, people are emotional and don’t want to sell when things are looking good and don’t want to buy when things are looking bad.

Since I know I can’t control or time the market, maybe I should invest the extra money and hope for the best? Since I don’t know what will happen in the next 6 months, year, or 5 years, what makes me think there will be a better time to invest? For all I know, the next 6 months could be the biggest rally of our lifetimes.

“Invest” At A Guaranteed 5.25% Interest Rate By Paying Off Student Loans

We’ve still got a lot of student loans to pay off and while most are in the 2-4% range, there are some still left at 5.25%. With the lower rate loans, I think that even with conservative investments, I will beat that over time. At 5.25%, should I take the guaranteed returns or risk it by investing in stocks? I think over the long-term, I will beat 5.25 (and by several percentage points), so I don’t think this is a great choice for me.

Invest in Alternative Investments That Don’t Track The General Market

Since I’m not 100% comfortable with the idea of sticking more money into the market right now, maybe I can invest with Lending Club? That type of investment is less correlated to market fluctuations and my investments have earned me nearly 11% since I started, so why not take those kind of returns that did well even during the recession?

Change My Investing Pattern To Dollar Cost Averaging And Automate My Investments

Maybe I’m just being too lazy and not admitting that I need to automate my investments. Why wouldn’t I automate this whole thing and not have to think about it or worry about market fluctuations?

The reason I don’t is that part of my income comes from my online endeavors and I never know how much I’m going to make. Some months are good and some months are not that good, so why would I set up a plan to invest that rests on making consistent contributions each month?

Plus, the amount I’m allowed to contribute also depends on this income, so quite often I don’t know how much I’m allowed to contribute until the end of the year.

My Decision

I’m leaning towards investing because over the long-term, it will beat that 5.25% and while I like diversifying my investments, I don’t want to put more time into managing my Lending Club account.

Readers, which option would you go for?

10 Responses to Where To Invest Extra Money When The Stock Market Is On A Hot Streak

  1. The issue I’ve run into is that I’ve subscribed to the theory you went into, only to have the market dip right after I bought. In the long term, you lose the time it takes to get back to where you started, should this happen. But, as many know, it’s impossible to time markets (unless you’re one of those who sets the direction).

  2. Mike@WeOnlyDoThisOnce says:

    Exactly–don’t invest simply because the market is hot. When things go up, things are also going down, and you might hit on the latter more than the former.

  3. Evan says:

    Why does it have to be all or none? Why not split it up between debt repayment and investing?

  4. Jake Erickson says:

    I agree with you that’s it’s nearly impossible to time the market, but I disagree that you should invest instead of paying off your student loans. Paying off those loans guarantees you a 5.25% and more freedom in the future. You could then begin to invest with the money that used to be going towards the loans on a monthly basis. Also, with your fluctuating online income, it’ll allow you to live on less if your income were to decrease for a few months.

  5. Emily @ evolvingPF says:

    While it’s not a traditional interpretation of DCAing, why can’t you still invest monthly or biweekly or whatever as your online income comes in? Just decide that you’ll invest a certain percentage and it won’t matter if you had a high or low month. That way you’re letting your income determine how much you invest instead of getting into market timing. What you are allowed to contribute is ultimately a percentage of what you earn, right?

    I’d say do whatever you can not to time the market – don’t go in AND don’t shy away because of the recent highs. I think putting extra money toward your 5.25% student loans is a good option, too. If you like both you could split your efforts between investing, lending club and paying off debt faster. But just make it consistent over time so that you don’t psych yourself out.

  6. krantcents says:

    I keep dollar cost averaging into the market in good and bad times.

  7. Do both! Split the money and pay off your student debt as well as dollar cost averaging into the market!

  8. debt is some what safer bet than equities.must analyze your risk before any investing.

  9. Scott @ Youthful Investor says:

    I’m in a similar boat to you but I have preferred to put more in the debt than in equities right now. I don’t buy equities in a bull market, with the lone exception being what is in my 401(k), which is automatic regardless of the market. I only buy individual equities when they are below my desired P/E ratio and have a certain level of cash coming in. Right now, they’re too hot and prices for the stocks in my portfolio are too high. I’ll keep collecting dividends and wait for them to cool down some.

    In the meantime, I will put more on paying off the debt but, I will actually put more in alternative investments. Not exclusive to something like a lending club, if you are knowledgeable about the markets, something like private equity, fine art, learning a new skill or Forex, could be considered an alternative investment.

  10. Kevin Watts says:

    Even though what you are doing is logically the right thing to do I for one, had to pay off all my loans to get debt free. It was more a psychological issue for me.

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