If you have been considering investing in recent months, you might think that the market feels too expensive.
The big question on everyone’s mind: Is this a good time to invest?
When markets get hot, investors are often caught between excitement and hesitation.
You don’t want to miss out on the upside, yet buying at inflated prices is risky.
Want to invest wisely even when everything seems too expensive? Let us break it down for you.
Why Are Hot Markets Tempting?
Headlines about record-breaking markets can stir up the fear of missing out (FOMO).
This urge drives many to buy now, before prices rise even further.
Rising stock prices can create an illusion of “easy money”, especially if you have been hearing stories from friends about their high gains.
You would want to get in before prices rise even higher, and this is FOMO working its claws into your investing strategy.
Furthermore, if everyone is buying, it must be the right move, right?
Unfortunately, there are many historical examples of overheated markets that later cooled.
Remember the meme stocks craze when GameStop (NYSE: GME) and AMC Entertainment (NYSE: AMC) skyrocketed within months during the pandemic, only to tumble shortly after?
Dangers of Chasing Highs
One of the biggest dangers of chasing highs is giving in to emotion and skipping the research.
You may not actually understand the business, and whether it has any real competitive advantage or how healthy the company’s financials are.
In your haste to buy before prices hit their highest, the stock you bought might be trading at a premium that is far above its long-term potential, making you vulnerable to sharp corrections when the market cools.
Emotional investing is also a common pitfall when you chase the market.
Buying based on excitement or fear will make you miss out on important information about the company that can cause huge losses in the future.
Even great companies can become bad investments if you pay too much for them.
Many times, buying high and panicking during a downturn leads to the classic mistake of buying high and selling low.
5 Smart Strategies in a Hot Market
So what should you do when the market feels too expensive?
Here are five investment strategies you can adopt to minimise risks.
- Stick to Dollar-Cost Averaging (DCA): Instead of timing the market, invest a fixed amount regularly. DCA effectively leads to buying more shares when prices are low and fewer when prices are high.
- Diversification across assets: Refrain from banking all your money on the hottest sector or product. Buy different assets such as REITs, ETFs, equities, and bonds across different industries.
- Research the fundamentals: Put the market highs aside and look for quality companies that have sustainable earnings growth or are in industries with long-term tailwinds. There are hidden undervalued gems even in overheated markets.
- Keep cash reserves: Holding some cash gives you the flexibility to act when opportunities arise. Keep dry powder for future dips.
- Think long-term: Compounding interests work best with time in the market, not timing the market.
What Can You Do Now?
It is time to blend income and growth for balance in your portfolio. Instead of chasing highs, look at quality companies with healthy financials and growth potential.
Singapore blue chips and REITs are known to reward investors with attractive dividend payouts, which act as a cushion even in a hot market.
PropNex (SGX: OYY) more than doubled its interim dividend to S$0.05, iFAST Corporation (SGX: AIY)’s second interim dividend was proposed to be a 33.3% year-on-year (YoY) increase to S$0.02, and ValueMax Group (SGX: T6I)’s latest interim dividend of S$0.012 for 1H’25, is a welcome addition after not paying any last year. .
There are also a lot of opportunities in US growth stocks.
However, their valuations rely on future earnings, and consistent growth with strong competitive advantages are things you need to consider before investing in these companies.
You can also read more about AI-related US growth stocks, solid potential US growth stocks, and Temasek-owned US growth stocks.
Get Smart: Remain Rational Even When It’s Hot
Chasing trends and panic buying are some of the worst things you can do when the stock market feels too expensive.
A hot market can cloud your judgment, causing you to be guided by your emotions instead of facts when investing.
Focus on sound investing principles and proven strategies: DCA, diversifying portfolio, and sticking to your long-term investment goals.
Markets will always fluctuate, but a consistent and well-thought-out investing strategy can help you build wealth over time.
When the market is unpredictable, where can you park your money with confidence? Our latest FREE report reveals 5 Singapore dividend-payers built to withstand global storms. Get it now and see what’s still worth holding.
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Disclosure: Wenting does not own shares in any of the companies mentioned.
