Is it a good time to invest at all-time highs?

As of today, the stock market (S&P 500) has reached a new all-time record high. That's around 30 all-time highs hit so far this year!

When stocks hit new record levels, some people question if now is a good time to sell stocks in anticipation of a market crash.

In today's letter, I want to share my thoughts about investing at all-time highs.

I completely get it. When stocks are at all-time highs, the first thought that crosses people's minds is that it must come down. And the allure of capitalizing on locking in gains and missing the next big collapse can be tempting.

Does all-time highs mean the stock market will fall?

This answer probably isn't what you think, and we will get to that in just a moment.

But first, if all-time highs are making you question your investments, the first thing to ask yourself is...

Does it really matter? Let me explain...

Unless the money you have invested is needed in the next 1-3 years, your investment portfolio is likely for 10, 20, or 30+ years down the road.

In other words, you don't need the money today.

Owning businesses (the stock market) through the ups and downs is part of being an investor. As much as we would like to see positive returns every day, month, and year... the fact is, you don't get to pick and choose your investment returns.

The ability for stocks to go down is a feature. If that didn't happen, there would be no risk, which means there would be no return.

So, if investing is for the long term, why make short-term decisions with long-term money?

Understanding the time frame of your money and investment portfolio is sometimes all you need to keep yourself on track.

But if that is not enough for you, let's look at this mind-blowing chart from JP Morgan.

This chart shows the average returns of investing on ANY day, compared to invested AT all-time highs.

In nearly every instance since 1988, investing at a new high has had a higher cumulative return than investing on ANY day!

Now, I don't suggest waiting for all-time highs to invest because that's a form of marketing timing, which the evidence supports is not a good long-term investment strategy.

But what about investing at all-time highs versus "waiting" until after a decline?

Dimensional Funds published some interesting data about investing at new stock market highs compared to investing AFTER a 20% decline.

The results?

On average, investing at new all-time highs generated similar returns as investing after a 20% decline over 1,3 and 5-year periods!

As much as we want to think that all-time highs will lead to stock market declines, the data doesn't say that.

This should give you confidence that investing at all-time highs isn't scary (historically). It's just part of investing, especially given that the stock market is designed to generate long-term positive returns and has gone up most of the time.

Like stock market drawdowns, you should expect many new highs over your investment lifespan!

Even if you're right, you could be wrong.

I want to share an example of how hard timing all-time highs is, which I have witnessed more than once.

I've worked with and spoken with many folks who "knew" the stock market would drop 25%+. In anticipation, they wanted to reposition their investments (cash, bonds, etc.).

The 25% crash came—they were right!

But this was only after the stock market reached a much higher level. In other words, once stocks dropped by 25%, the stock market was still higher than they originally "predicted" it would drop!

Being right but still wrong is a big reason the average investor never earns an average stock market return. Investors get in their own way, trying to maximize and outsmart the stock market.

Remember at the beginning of this letter when I said the stock market has hit about 30 new all-time highs (so far) in 2024?

Imagine trying to get out and back in the stock market 30 times with any accuracy. That's 60 decisions to try to get correct each time!

It's not possible and not worth the brain damage.

Worrying about stock market all-time highs (and lows) is a part of human nature. Uncertainty can be scary.

However, uncertainty is also what creates long-term investment returns.

Leave it up to the financial media to report on the stock market's highs and lows (and turn it off, by the way).

Your goal is to focus on the factors you can control and ensure your investments are aligned to meet your financial goals.

So, is it a good time to invest at all-time highs?

As a long-term investor, it's generally always a good time to invest.

Travis Gatzemeier, CFP®

Founder & Financial Planner