[Deep Dive] Is it really profitable to wait for a 5% long-term interest rate to invest? | The 180,000 yen difference per 1 million yen over 20 years by 'waiting for it to drop …

“Wait to invest until long-term interest rates fall below 5%.” If you follow this rule and invest 30,000 yen per month for 20 years, the assets of someone who just continued steadily will be calculated to be 180,000 yen less per 1 million yen (median of 642 scenarios starting after 1953). The essence of the loss is not the high interest rate itself, but the fact that U.S. long-term interest rates, which exceeded 5% in 1967, took 31 years to fall below 5%.

On the other hand, even with the same “waiting” strategy, the difference for those who decided to “resume once interest rates drop by 1 percentage point from the peak” remained within a range of -3.3% to +2.6% for any 20-year period. The profit or loss from waiting due to interest rates is either “almost no difference” or “irreparably large,” and the dividing line is not the level of interest rates, but whether you had decided in advance “when to return.”

In this article, we will present monthly data since 1953 on the subsequent stock prices in months when the U.S. 10-year Treasury yield was 5% or higher, the investment results of those who “waited” versus those who “continued,” and the 10-year outlook for those who “switched to 5% bonds.” By the time you finish reading, you should be able to think about the decision to “wait because interest rates are high” separately for your own regular investments and your lump-sum funds.

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Background: 5% range interest rates and record-high stock prices are occurring simultaneously

On October 7, the U.S. 10-year Treasury yield was 5.28%. The 30-year bond was 5.67%, and the 3-month bill was 4.22% (Source: U.S. Department of the Treasury “Daily Treasury Par Yield Curve Rates” October 2026). It hit 5% in daily closing prices on September 15, and levels at or above 5% have continued since then.

Even so, stock prices have not collapsed. The S&P 500 closed at 7,818.93 on October 6, surpassing the 7,798.99 of August 13 and updating its record closing high for the first time in about two months (Source: FRED “S&P 500 (SP500)”).

In the Japanese timeline, two voices are spreading simultaneously. One is the voice saying, “Current bonds are much more attractive than in the low-interest era, and it’s time to rethink the stock-only approach,” and the other is the voice saying, “I will continue to buy steadily regardless.” In between, many people are likely wondering, “Wouldn’t it be safer to stop investing for a while and wait in cash until interest rates fall?”

The starting point for this time is “Where is the Stock Market Volatility?” published on October 1 on Ben Carlson’s blog “A Wealth of Common Sense” (Source: A Wealth of Common Sense). In response to a reader’s question, “Why is stock market volatility remaining low even though bond yields are soaring?” Carlson writes two things. One is that in 12 of the past 14 times the 10-year Treasury yield rose by more than 1 percentage point, stock prices were positive throughout that period. The other is that when bonds start yielding 5-7%, some investors will shift funds from stocks to bonds, which can become a factor in stock price volatility.

The first half of this blog, “Do stocks collapse while interest rates are rising?” was verified in the September 30 article using five phases where the 10-year Treasury yield rose by more than 1 percentage point. The result was that there was not a single phase where they collapsed immediately after interest rates started rising, and the collapse occurred only after the rise had continued for more than a year.

In the September 24 article, we verified “Is it worth stopping regular investments because of record highs?” What we verified up to the last time was the price of a record high and the conditions for a ceiling to arrive. This time, we will verify a different question: Is it profitable to wait to invest or switch to bonds because interest rates are high?. We will not deal with when the ceiling will arrive or why interest rates are high.

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Common assumption: “As long as interest rates are high, it’s safe to wait”

There is a good reason why “high interest rates” and “waiting” are easily linked.

As Carlson also writes, stock prices can be considered the value of future earnings discounted by interest rates. If interest rates rise, the current value of the same earnings becomes smaller. Furthermore, now, just by keeping cash in short-term government bonds or MMFs (investment trusts that invest in short-term financial assets), you can earn interest of around 4% per year. The idea that “you don’t have to go out of your way to buy high-priced stocks, you can just wait in cash until interest rates fall” makes sense in theory.

However, this idea hides two premises. One is the premise that “during periods of high interest rates, stock returns are low.” The other is the premise that “if you wait, interest rates will eventually fall.” We will verify them in order.

The data used are the monthly average of U.S. 10-year Treasury yields (FRED “GS10”), the yield on 3-month Treasury bills (FRED “TB3MS”), the Consumer Price Index (FRED “CPIAUCSL”), and the monthly average stock price and dividend yield of the S&P 500 (published on multpl.com, based on data from Professor Robert Shiller). The period is from April 1953, when monthly data for 10-year Treasuries began, to September 2026, and dividends are calculated as if they were reinvested every month.

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Verification 1: “5% or higher” was not rare. However, it is almost entirely concentrated in one era

Of the 882 months since April 1953, the months when the monthly average of the 10-year Treasury yield was 5% or higher were 419 months, 48% of the total. Historically, 5% was not an “abnormally high interest rate.”

However, the content is heavily skewed. Of the 419 months, 375 months are concentrated in one phase from June 1967 to August 1998. During these 31 years and 2 months, the monthly average of the 10-year Treasury never fell below 5%. Conversely, since 2008, there has not been a single month with 5% or higher. The most recent was 5.00% in July 2007, and the monthly average for September 2026 was 4.99%.

In other words, “data from the era of 5% or higher interest rates” is effectively data from one era from the late 1960s to the 1990s. The high-inflation 1970s, the early 1980s when interest rates exceeded 15%, and the 1980s and 90s when interest rates continued to fall are all included in this. You need to read the following figures with the premise of this bias.

What happened to stocks bought in months with 5% or higher interest rates?

Here are the results (annualized, median, including dividends).

• 1 year later: Months with 5% or higher: +12.9% / Months with less than 5%: +14.2% (The percentage that was positive after 1 year was 75.2% vs 81.2%)

• 5 years later: +12.7% / +11.3%

• 10 years later: +12.7% / +9.7%

In nominal terms, 10 years after buying stocks in months with 5% or higher, the returns exceed those of months with less than 5%. However, it is premature to interpret this as ‘it is profitable to buy when interest rates are high.’ Many of the months with 5% or higher were periods when inflation was also high, and when compared in real terms, subtracting inflation, 10 years later, it is almost the same at +7.5% vs +7.4%.

What can be said here is only that ‘stocks bought during periods when interest rates were 5% or higher produced real returns over the following 10 years that were no different from stocks bought during periods when they were not.’ The formula ‘high interest rates = falling stocks’ did not hold true on a 10-year scale.

However, the situation is different over shorter periods. If we limit it to months (87 months) where the 10-year Treasury was 5% or higher and had risen by 1 point or more in the previous 12 months, the median real return after 1 year was only +4.3%, and the percentage that beat cash invested in 3-month Treasury bills for the same year was 57.5%. In a year like the current one where interest rates are rising rapidly, the difference between stocks and cash has narrowed considerably. The feeling of ‘wanting to wait’ has a basis in the short term.

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Verification 2: Those who waited vs. those who continued. What made the difference was the ‘way it returned’

So, what actually happened when ‘waiting because interest rates are high’ was implemented in a savings plan? We compare three people who invest 30,000 yen per month for 20 years.

• The person who continued: Buys S&P 500 with 30,000 yen every month

• The person who waits for less than 5%: Does not buy in months when the 10-year Treasury yield (monthly average) is 5% or higher, keeps it in cash, and invests the accumulated cash all at once in months when it falls below 5%

• The person who resumes at peak -1pt: Starts waiting from the month when the 10-year Treasury is 5% or higher and has risen by 1 point or more in the last 12 months, and invests the accumulated cash all at once in the month when it has fallen 1 point from the subsequent peak

The cash while waiting is assumed to be invested at the yield of 3-month Treasury bills. Since just letting the cash sit (0% interest) would be too disadvantageous for the ‘person who waits,’ we set conditions close to the interest that individual investors can currently obtain with MMFs, etc.

Opposite results with the same rules

These are examples starting from two months when the 10-year Treasury exceeded 5%.

When starting in June 1967, the ‘person who waits for less than 5%’ could not buy stocks even once for 20 years (240 months). This is because the interest rate fell below 5% in September 1998, after the 20-year savings period had ended. The valuation was 17.82 million yen compared to 32.45 million yen for the person who continued. Although the cash interest averaged in the 7% range annually, there was still a difference of 14.63 million yen. During the 31 years from June 1967 to August 1998, the S&P 500 increased about 36 times including dividends. Cash (3-month Treasury bills) for the same period was about 7.9 times, and prices were about 4.9 times.

When starting in May 2006, it is the exact opposite. The 10-year Treasury fell below 5% in 5 months, and the person who waited invested all at once at that point. The valuation after 20 years was 33.98 million yen for the person who continued and 33.99 million yen for the person who waited, and the difference is almost zero.

Despite using the same rules, the results diverged between a “14.63 million yen difference” and “almost no difference”. The difference is not the level of interest rates, but the time it takes for rates to fall below 5% after you start waiting. And that time is unknown at the moment you start waiting.

On the other hand, those who “restarted at peak -1pt” ended up with 33.15 million yen if they started in 1967 (+2.2% compared to those who continued) and 33.88 million yen if they started in 2006 (-0.3% compared to those who continued). In both eras, the results were almost no different from those who continued.

Even when arranged in 642 patterns, they take the same shape

We calculated 642 patterns of 20-year investment plans by shifting the start month one by one from April 1953 to September 2006.

• Wait until below 5%: The median difference is -18.1%. It outperformed by 1% or more in 129 out of 642 cases (20%), and the worst case was -75.5% for those who started in July 1978.

• Restart at peak -1pt: The median difference is +0.2%. It outperformed in 324 cases (50.7%), and all differences fell within the range of -3.3% to +2.6%.

The “180,000 yen per 1 million yen” mentioned at the beginning refers to this -18.1%.

Here, I will also write down the “periods when waiting was advantageous” without hiding them.

“Waiting until below 5%” outperformed mainly for investments started between 1953-62 and 1996-2000. In the former case, the latter half of the 20 years overlapped with the 1970s, allowing investors to avoid the massive stock market decline of 1973-74 by holding cash while receiving high interest. The maximum was +15.5% for those who started in August 1962. In the latter case, the waiting period overlapped with the final stage of the IT bubble in 1999-2001 through the beginning of its collapse, allowing the accumulated cash to be invested in bulk when stock prices fell in 2001-02.

Regarding the “restart at peak -1pt” rule, if we look at the 11 waiting periods individually (1968-70, 1973-76, 1999-2000, etc.), in 8 out of 11 cases, cash held while waiting outperformed stocks. The yield on 3-month Treasury bills while waiting was high, averaging 7.5% per year, so the decision to wait was actually rewarded in the short term, specifically when interest rates were rising rapidly.

Why is there almost no difference even if you wait?

Even so, why does the difference after 20 years stay within plus or minus 3%? The answer is simple: even if you stop investing, the stocks you already own remain in the market.

If someone who has been investing 30,000 yen a month for 10 years starts waiting, the only thing that becomes cash while waiting is the “new 30,000 yen during that period.” The valuation accumulated up to that point continues to rise and fall as stocks even while waiting. The decision to wait can only affect a small portion of the total assets, and once the waiting period ends, that cash returns to stocks. Therefore, whether the decision to wait is right or wrong, the difference after 20 years will be small.

Conversely, if you choose a return condition like “until it falls below 5%,” there are times when the day to return never comes for decades. All the new money put in while waiting accumulates as cash, and the majority of the investment becomes an “investment without stocks.” This is the true nature of the -18.1%.

The danger of waiting based on interest rates lies not in the decision to wait itself, but in setting the condition for returning as “interest rates falling”, which is how to interpret the data this time.

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Verification 3: 10 years later for those who moved to 5% bonds

Another option is to “move to bonds” instead of “waiting.” In the October 3rd weekly summary, we covered “Do bonds not lose if held for a long time?” and confirmed that the high yield at the starting point becomes the foundation for future returns. This time, as a comparison, we will line up “those who bought 10-year bonds and held them until maturity” and “those who bought the S&P 500 and held it for 10 years” in months when the 10-year bond yield was 5% or higher.

Bond returns are treated as if the yield of the month of purchase continued for 10 years. Since it assumes that interest payments could be reinvested at the same yield, the calculation is slightly favorable to bonds.

Out of 419 months, stocks outperformed bonds after 10 years in 331 months, or 79.0%. If we look at 1 million yen, the median valuation after 10 years is 3.31 million yen for stocks and 2.07 million yen for bonds. When comparing over 20 years, the percentage of time stocks outperformed rises to 91.6%.

However, there are clearly defined periods where bonds won. These are the months purchased between 1967–72 and 1998–2002. People who bought bonds with yields in the 5% to 6% range during these two periods earned higher returns than the S&P 500 over the following 10 years. If we narrow it down to the 84 months when yields were in the 5–6% range, stocks only outperformed 38.1% of the time.

Both of these periods were times when stock prices were expensive relative to earnings. Since we confirmed in the September 24th article that the valuation metric (CAPE) determined the returns for the following 10 years, I will not repeat that here. What I want to emphasize is that the current 10-year Treasury yield of 5.28% is in the ‘5–6% range’ band, and as we saw in that article, current stock prices are also at an expensive level. The sentiment that ‘bonds have become attractive’ is not without basis when compared against historical data.

Note that the bonds referred to here are US Treasury bonds denominated in US dollars. If you buy US Treasury bonds in yen, you are subject to exchange rate fluctuations, and if you use ‘currency hedging’ to suppress those fluctuations, the yield decreases by the cost of that hedge. For individual investors in Japan, a ‘5% bond’ is not as simple as the dollar figure suggests.

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Reflection: It’s not about ‘waiting or continuing,’ but ‘whether you have decided how to return’

From here on, these are my thoughts as a ‘market compass’.

Personally, I am continuing my S&P 500 monthly investments calmly without making judgments. Even after finishing this verification, I have no intention of stopping my monthly investments based on interest rates. The reason lies in the asymmetry of gains and losses: the difference gained when a decision to wait is correct is small (maximum +2.6% over 20 years), while the difference lost when the decision to return is wrong is large (-75.5% over the same period).

On the other hand, I do not believe this data suggests that you ‘don’t need to worry about interest rates at all.’ During the one year when interest rates were rising rapidly, the gap between stocks and cash was narrowing. Bonds in the 5% range during periods when stock prices were expensive have outperformed stocks many times over 10 years.

Let’s look at this through three scenarios.

From an optimistic perspective, this is a case where profit growth continues and stock prices rise even while interest rates remain high. It is a development like the late 1980s to the 1990s, where stocks continue to rise even if interest rates of 5% or higher persist for a long time. In this case, ‘waiting until it drops below 5%’ would leave you behind, unable to buy stocks for years, as in the example starting in 1967.

From a neutral perspective, this is a case where the 10-year Treasury yield fluctuates in the 5% range and stock prices remain relatively flat. As the results of the past ‘peak -1pt’ rule show, I see almost no difference in monthly investments whether you wait or continue. It is a scenario where the time spent worrying becomes the cost.

From a pessimistic perspective, this is a case where prices accelerate again and interest rate hikes continue for a long time, like in the 1970s. Cash or newly purchased bonds while waiting may outperform stocks for a while. However, even in this scenario, if you haven’t decided ‘when to return,’ you won’t be able to make the decision to return once interest rates peak and stocks start to rise.

So, what does this mean for investors?

I think it is easier to organize by thinking about the types of money.

Continue: Monthly investments. The only part you can move by deciding to wait is the new money you put in, and the difference after 20 years was within ±3% in any past period. Based on the data, I see no need to review your investment settings every time there is news about interest rates.

Wait: Lump-sum funds such as bonuses or maturity payments. If you are going to invest while watching interest rates, I believe it is important to decide on the conditions for returning by date or number in advance, rather than ‘when interest rates drop.’ For example, forms like ‘investing in 6 installments’ or ‘investing when it drops 1 point from the peak.’ If you keep the cash you are waiting with in a place that earns interest rather than a regular savings account, the cost of waiting becomes even smaller.

Review: The ratio of stocks to money you plan to use within 5 to 7 years. For money with a fixed usage time, such as a down payment for a house or education expenses, it would be problematic to hit a 10-year period like the two times mentioned here where ‘stocks lost to bonds.’ If stock prices have continued to hit highs and the ratio of stocks has risen higher than expected, moving a portion of that to higher-yielding bonds or deposits is, in my view, one option based on past data. This is not ‘waiting,’ but the task of rebalancing your assets.

Summary

I will narrow it down to three main points.

1. The 10-year performance of stocks bought in months with interest rates of 5% or higher was virtually the same in real terms as those bought in months with less than 5%. The real annual rate after 10 years is +7.5% versus +7.4%. However, limited to the one year when interest rates were rising rapidly, stocks only outperformed cash 57.5% of the time.

2. What determined the profit or loss of ‘waiting’ was not the level of interest rates, but how they returned. ‘Waiting until it falls below 5%’ resulted in a median difference of -18.1% over 20 years (180,000 yen per 1 million yen), and a difference of 14.63 million yen if started in 1967. If you ‘resume when it drops 1 point from the peak,’ the difference stays within ±3%.

3. 10-year bonds purchased in months with 5% or higher interest rates sometimes outperformed stocks 10 years later. Overall, stocks outperformed in 79.0% of months, but bonds had higher returns for months purchased between 1967-72 and 1998-2002.

It is natural to feel that you should ‘stop for a while’ when you see news about 5% interest rates. However, I believe the answer to that hesitation lies not in ‘whether to wait or continue,’ but in ‘keeping monthly accumulation as is, and deciding in advance how to handle the return of lump-sum funds.’

Don’t rush; make decisions based on data and your own investment principles. To that end, the next time you open your brokerage account, why not take a moment to check not your accumulation settings, but where the cash you are holding is placed, and whether money you plan to use soon is not invested in stocks?

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To newcomers: I am an individual investor with over 10 years of experience in US stock investment. I write notes several times a week that delve into US stocks and macroeconomics based on primary English sources. I am not a financial expert, and I share this from the perspective of a fellow individual investor.

The US Consumer Price Index (CPI) for September will be announced on October 14. How prices affect the direction of interest rates is directly linked to the ‘pessimistic perspective’ of this article, so I plan to follow up with the numbers once the results are out. If you are interested, please follow me to receive updates.

[Disclaimer]
This article is created for informational purposes and does not recommend or solicit investment in any specific financial product. Please make final investment decisions at your own responsibility. While every effort has been made to ensure the accuracy of the information provided, we do not guarantee its completeness.