investing at market highs
The stock market continues to set new highs. The bull market has been running for almost 11 years, the longest in history, and setting all-time highs since 2013. This has been great for investors, yet at the same time, it can cause concern that a drop is right around the corner. Of course, the market will drop at some point, ups and downs are a part of investing, however, don’t let the fear of market highs drive your investment decisions.
Market highs get a lot of headline news, but they are a pretty common occurrence and should inspire confidence rather than fear. Below is some information to back up my reasoning:
Post-World War II:
- The S&P 500 has spent about half the time within 10% of all-time highs. In other words, it’s frequently close to “the top”
- The S&P 500 has had positive returns 74% of the time the year following all-time highs, and even more frequently for the following 3- and 5-year periods
- Number of market highs in recent years:
2013 – 45
2014 – 53
2015 – 10
2016 – 18
2017 – 62
2018 – 18
2019 – 20+
If you interpreted market highs as a sign to hunker down and seek safety, you’ve likely suffered huge opportunity costs. Since the S&P 500 reached a market high in March 2013 following the Great Recession (a 5-year dry spell without market highs), it has hit over 200 new all-time highs and has more than doubled in value.
As it is said, “time in” the market, not “timing” the market, is a more reliable strategy. I’m not saying that my crystal ball is telling me we will continue to set market highs each of the next few years, but I am saying that market highs are not reason alone to fear the stock market.
Yes, there can be long periods of time without new highs, which is why it is important to make sure you have the right portfolio for your circumstances, one that is well diversified and in-line with your needs and comfort level.
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