The S&P 500 hit a new all-time high just last week, and that might make you hesitant about jumping into the market right now. With prices higher than they’ve ever been, it might feel like you’re setting yourself up for regret.
But before you decide to sit back and wait for a dip, here are a few things to consider.
One: the market hits all-time highs more often than you might think. The S&P 500 has hit a new peak in about 30% of more than 1,000 months analyzed since 1926. If you try to dodge those moments, you could miss out on a ton of opportunities.
Two: investing at a market peak hasn’t hurt returns, historically. Quite the opposite. The 12-month returns following a new high are on average 10.3% ahead of inflation (blue bars), compared to 8.6% at other times (green). Returns over two or three years are slightly better too, demonstrating a similar trend.
Three: the dip you’re hoping to see is pretty rare after an all-time high. Looking at the one-year period after each all-time high, dips of more than 10% happened only about 6.5% of the time. And over longer stretches, they’re even rarer. Heck, since 1950, the S&P 500 has never dropped by more than 10% over a 10-year period after hitting an all-time high.
Now, let me just stop you before you can say “what about Japan?” Yeah, it took Japan 30 years to get back to its 1989 highs, but that’s an exception, not the rule. The US economy doesn’t face anywhere near the same sort of pressures Japan did back then. And the companies that are driving the S&P 500 rally are strong.
So instead of trying to predict where the market’s headed, focus on what you can control. Keep a diverse portfolio, invest regularly, and watch those investment fees. Nobody can predict the future, but history shows us that stocks generally trend upward over time. All-time highs aren’t necessarily a red flag – in fact, they just might be a sign that there’s more growth ahead.
