You open your phone and see the S&P 500 at 7,600 and Nasdaq at 27,000 — your finger is already sliding toward the order page. Stop. It’s exactly that motion that has caused countless Taiwanese retail investors over the past 20 years to repeatedly catch the knife at the high and sell at the bottom, then tell themselves next time will be different. But next time is always the same.
You know the most ironic part? When you see “the great US bull market is here, get on board” in the chat groups, the truly wealthy have already quietly moved part of their capital out. Not because they are smarter than you, but because they know something no one has told you: the hotter the market, the more smart money avoids chasing the high and does three other things instead.
This article is for financial education purposes only and does not constitute investment advice. Each person’s financial situation, risk tolerance, and investment experience differ; what works for others may not work for you. All investment decisions should be self-evaluated with consultation of Taiwan-licensed financial advisors and tax professionals.
You think you’re investing; actually you’re buying emotional insurance
At market highs, the most expensive thing is not the stock you buy, but the opportunity cost and psychological cost you pay for fear of missing out.
Every time an index hits a new high, your brain receives not danger but the signal “if I don’t buy now, it’s too late”. This isn’t your fault; it’s a hardwired human instinct, the misapplication of loss aversion. The problem is, this instinct exposes your assets to the greatest risk at the market’s most dangerous moment.
The S&P 500’s current CAPE (cyclically adjusted P/E) ratio is in a relatively elevated zone. This doesn’t mean the market will crash tomorrow, but it does mean that those entering now get less future return for the same dollar than three years ago.
Why don’t you have dry powder to add on every big drop? Because you fired all your bullets at the high, then watched the good prices walk past you, told yourself “I’ll wait for the rebound”, and when the rebound came you chased again. Sound familiar?
The 3 things the wealthy are doing
Thing 1: Move part of the capital to short-term US Treasuries or money market instruments
US Treasury data shows that over the past two years, institutional flows into short-term Treasuries and money market funds have hit historic highs. These people aren’t bearish on the stock market; they are moving part of their chips to higher-certainty places in high-valuation environments, preserving flexibility for future entry.
How can Taiwanese investors do the same? Through Taiwan investment trust platforms you can buy ETFs tracking US short-term Treasuries, or simply convert NTD to USD and place them in interest-bearing foreign currency accounts, or USD-denominated money market funds. This isn’t telling you to move all your money, but to keep a certain “bullet compartment” allocation in your portfolio so you have tools to add on pullbacks.
Thing 2: Add to relatively cheap or undervalued sectors
Take a familiar example for Taiwanese. Tech stocks have rallied a lot over the past two years, but global energy infrastructure, parts of Asian markets, and certain defensive stocks are still in relatively reasonable valuation zones.
What the wealthy do is take some of the money over-concentrated in hot sectors and diversify it, rather than going all-in on the same place that’s already up a lot.
Thing 3: Reinforce emergency reserve and liquidity buffer
This sounds boring, but it’s the most overlooked thing by retail investors. At market highs, the last thing you should do is deploy every movable dollar and put yourself in a position where “if the market pulls back, my living expenses break down and I’m forced to sell at the bottom”.
The reason the wealthy get richer after every crash is not because they predicted the crash, but because when the crash happened they had enough liquidity to choose not to sell, or even to add.
3 end-state scenarios: lump-sum at high vs DCA entry
Scenario 1: All-in at the high
Suppose you are a Taiwanese office worker saving NT300,000 of accumulated savings and lump-sum into a US equity ETF. Three months after entry the market drops 35% due to some black swan event, and your NT195K.
At this point your psychological pressure has hit the wall. You tell yourself to hold long-term, but checking the number daily disrupts your sleep and your work. Six months later the market drops further to 60% of your cost — your NT180K. You finally can’t take it and sell at the bottom, locking in a NT$120K loss.
That NT$120K isn’t just a money loss; it’s the result of nearly a year of intense psychological pressure. What makes it crueler is that three months after you sell, the market rebounds, and a year later it’s back at your cost. You weren’t part of that rebound because you’d been scared out.
Scenario 2: DCA entry + keep dry powder
Same NT$300K of savings, you don’t lump-sum, you split it three ways:
- First NT$100K continues your original DCA plan, buying a fixed amount each month regardless of market level
- Second NT$100K sits in highly liquid, relatively stable instruments like Taiwan money market funds or foreign currency deposits, as movable bullets
- Third NT$100K stays as your emergency reserve, untouched
When the market drops 35%, the first portion’s DCA position also has losses, but because you’re buying in batches your average cost is much lower than the high. And because you still have the second portion as bullets, you can choose to add at the bottom. You aren’t forced to sell at the bottom because your living expenses are covered.
When the market eventually returns to the starting point, your overall return is far higher than the person who lump-summed at the high and panic-sold at the bottom.
Scenario 3: The 20-year long-term gap and extreme black swans
Extreme black swan events with records in the Taiwan market include the 2000 tech bubble, the 2008 financial crisis, and the 2020 COVID pandemic — in all three events the Taiwan Weighted Index and US equity ETFs held by Taiwanese saw maximum drawdowns of 35% to 55%. The 2008 financial crisis saw the Taiwan Weighted Index drop nearly 60% from high to low, with a recovery period exceeding five years.
If you lump-summed NT1M had become about NT1M you needed to rise 150% from NT$400K, which took more than five years.
But if you used batched entry with dry powder, and added at the 2008 bottom, your overall recovery period could shrink to two or three years, and your final total return would far exceed that of the person who lump-summed at the high and just held on.
3 Taiwan-specific blind spots
Blind spot 1: DCA fees eat small-amount returns
Many people assume DCA is the ultimate risk-diversification solution, that fixed monthly buying means you don’t need to think about market levels. But Taiwan has a local issue many overlook: most Taiwan DCA services run through investment trust or bank platforms, and their fee structure on small monthly contributions can represent a much higher percentage of your monthly investment than you’d expect.
If you invest only NT$3,000 per month and the platform charges a minimum fee, your effective fee ratio may exceed your expectations. The fix is to choose platforms friendlier to small investors while your monthly amount is still small, or accumulate small monthly contributions to a threshold and then buy in one go, rather than paying a minimum fee every month.
Blind spot 2: The real impact of FX costs
Many Taiwanese investors buying US ETFs only look at index-tracking returns, without accounting for FX costs. The TWD/USD exchange rate’s volatility during long-term holding has a real impact on your actual return.
If you convert and buy USD assets when TWD is relatively strong, then convert back when TWD is relatively weak, you can earn an extra slice; but if it’s the other way around, FX losses may eat part of your investment return. This is not telling you to speculate on FX, but to factor the TWD/USD asset ratio into your long-term allocation decisions.
Blind spot 3: Misreading “don’t chase” as “don’t invest at all”
After hearing “valuations are high, be careful”, many jump to the wrong conclusion: “then I’ll buy nothing and wait for the crash”. That logic is equally problematic, because you don’t know when the crash will come — the market might rise another 30% while you wait, and then you enter at an even higher price, or you never see the price you wanted and end up buying nothing.
The correct approach is neither all-in nor all-out, but to make a position decision backed by clear logic, based on your financial situation, risk tolerance, and current market valuation.
4-step action plan
Step 1: Re-examine your position
Open your broker APP and calculate whether your current US equity exposure is full, half, or empty position. The next steps differ entirely by position level.
Step 2: Build a bullet compartment
Allocate 20% to 30% of your portfolio to short-term US Treasury ETFs or money market funds, earmarked for adding on pullbacks. This is the concrete meaning of “don’t chase the high”.
Step 3: Reinforce emergency reserve
Make sure you have 6 to 12 months of living expenses in high-yield savings or money market funds, untouched. This is the capital that lets you choose not to sell in the worst moments.
Step 4: Continue your DCA plan as before
Regardless of market level, don’t stop your original DCA plan. Dollar-cost averaging works best in volatile markets, on the condition that you actually have the discipline to keep buying on dips.
Conclusion: What you can’t afford isn’t missing out; it’s having no bullets
At market highs, the most expensive thing is not the stock you buy, but the opportunity cost and psychological cost you pay for fear of missing out. What you can’t afford isn’t missing the rally; it’s having no bullets to add when the crash comes.
Open up your portfolio and see if you are running “fully invested”. If yes, now is the time to adjust. Moving from fully invested to 70% stocks + 30% bullet compartment is easier than you think, and more important than you think.
Disclaimer: All content in this article is for financial education purposes only and does not constitute investment advice. Each person’s financial situation, risk tolerance, and investment experience differ; what works for others may not work for you. All investment decisions should be self-evaluated based on your own financial situation and risk tolerance, with consultation of Taiwan-licensed financial advisors and tax professionals. Any numbers or scenarios mentioned are estimates based on specific assumptions and do not guarantee actual investment outcomes. Markets carry risk; do your homework before investing.
Tags
S&P 500, Nasdaq, US Stock Valuation, Short-Term Treasuries, Money Market Fund, Asset Allocation, Emergency Fund, DCA, Currency Risk, Taiwan Investors, US Stock ETF, Don’t Chase Highs, Valuation P/E
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