The market just reached a new record high. Does that mean it’s a bad time to invest?
Does a new equity market peak indicate that further upside for stocks is limited? History suggests that’s often not the case. As illustrated above, periods following a new “all-time high” for the S&P 500 haven’t yielded poor returns over most periods — even over a relatively brief period. In fact, the S&P 500 has posted a positive return 84% of the time in the one-year period and more than 90% of the time in the three-year period following a new record high for the index. Moreover, the opportunity cost to staying on the sidelines during those periods wasn’t small either, as the average return in the subsequent one- and three-year periods were 18% and 55%, respectively.
The history of the equity markets tell a clear story: over the long term, equities demonstrate sustained growth despite periods of volatility and periodic bear markets. Put simply, stocks go up more often and to a greater degree than they go down, with “record highs” being temporary as equities continue their long advance to new highs over the course of time. Against that backdrop, there’s a cost to not investing that is real and substantial. As the legendary investor Peter Lynch noted, “far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.” Spending mental energy trying to determine the perfect time to invest is unnecessary, if not counterproductive. Research has demonstrated that over the long term, investors are further ahead investing in stocks even at calendar year peaks in the index, rather than not investing in stocks at all. As we addressed in our recent piece, time in the market trumps timing the market.
What’s the bottom line? While an investor should consider a variety of metrics before investing, the fact that markets recently hit an all-time high shouldn’t necessarily be one.
Past performance does not guarantee future results. All investments include risk and have the potential for loss as well as gain.
Data sources for peer group comparisons, returns, and standard statistical data are provided by the sources referenced and are based on data obtained from recognized statistical services or other sources believed to be reliable. However, some or all of the information has not been verified prior to the analysis, and we do not make any representations as to its accuracy or completeness. Any analysis nonfactual in nature constitutes only current opinions, which are subject to change. Benchmarks or indices are included for information purposes only to reflect the current market environment; no index is a directly tradable investment. There may be instances when consultant opinions regarding any fundamental or quantitative analysis may not agree.
Plante Moran Financial Advisors (PMFA) publishes this update to convey general information about market conditions and not for the purpose of providing investment advice. Investment in any of the companies or sectors mentioned herein may not be appropriate for you. You should consult a representative from PMFA for investment advice regarding your own situation.