The stock market has been on a tear lately, with the S&P 500 reaching new heights. This surge has left many investors wondering if it’s still a good time to invest, or if they should wait for a correction. The fear of buying at the top and riding out a potential downturn can be daunting. However, history suggests that investing when the market is at an all-time high can be a wise decision.
Rather than trying to time the market, investors should focus on the long-term trend. Stocks tend to rise over time, and new all-time highs are often followed by even more gains. In fact, since 1955, there have been 12 years where the S&P 500 set a new closing record at least 40 times. This clustering of new highs suggests that the market is likely to continue its upward trajectory.
Investors who bought into the market when the S&P 500 hit its first new all-time high in 2022 would have already seen a return of around 18.5%. And, according to historical data, the average total return for the S&P 500 24 months after hitting a new all-time high is a impressive 20.2%.
On the other hand, trying to time the market by moving to cash and waiting for a correction can be a costly strategy. One study found that a $100 investment in 1926 would have grown to around $85,000 by the end of 2023, but if you had moved to cash every time the market reached an all-time high, your return would be a paltry $8,790.
For investors who don’t want to try to pick individual winners, a simple index fund can be a great option. The Vanguard S&P 500 ETF, for example, tracks the returns of the S&P 500 and has a low expense ratio of just 0.03%. This means you’ll pay only $0.30 per year for every $1,000 you invest.
While there are no guarantees in the stock market, history suggests that investing when the S&P 500 is at an all-time high can be a smart move. So, rather than waiting on the sidelines, consider putting your money to work and riding the market’s upward trend.
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