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Markets are at All-Time Highs. Is It Too Late to Invest?

Markets are at All-Time Highs. Is It Too Late to Invest?

March 02, 2024

At this stage in the market cycle, I often get the question, "Is it too late to invest?" Or, "Should we change our investment mix because stocks are too expensive?"

Understanding the Market Cycle and Investment Timing

Generally, my answer focuses on the clients’ situation, their goals, and their plans to spend the money. As a fiduciary planner, I try hard to keep my eye on how I can help clients make choices that move them closer to their goals.

If you are in your 50s or younger, and if the money we are talking about is retirement money like IRAs or 401ks, then most likely you don’t plan to spend that money for 10-20 years. And, if that’s the case, stocks are generally your best investment over a 10-year period.

It’s easy to feel like an all-time high means that a pullback is coming soon. But the fact is that all-time highs are actually pretty common. Actually, since 1988, the S&P 500 has averaged 20 new all-time highs per year and nearly 85% of the time, one year later, the market was even higher.

But, if you spend too much time looking at headlines, or watching TV “Investment News” you could easily get the feeling that you’ve missed the chance to invest, and you need to “do something” before the next correction.

Dispelling Myths: All-Time Highs and Market Trends

Remember, that “Investment New” is a for-profit entertainment business. They want to be interesting and compelling so you will stay around to see some advertising for fabulous products that pay to make the media profitable.

Historically, the S&P 500 is positive about three out of every four years. So, in years when the market is up, there will be plenty of all-time highs. The chart below shows the number of all-time highs each year since 1980. After the Great Financial Crisis of 2008, it took until 2013 for the S&P 500 to recover to a new high. Between 2013 and 2021 the index had an average of 38 days closing at new all-time highs each year. Roughly 15% of trading days.

Stock market all time highs

Remember that stock values are a reflection of the markets expectation of profitability for those companies. In 2023, economic factors where generally good. The latest GDP report for the fourth quarter showed that growth was stronger than expected at 3.3% quarter-over-quarter, exceeding economist expectations of only 2.0%. And real GDP (adjusted for inflation) grew by 2.5% across all of 2023, one of the fastest growth rates over the past decade. As the chart below shows, consumer spending, business investment, government spending, and trade all contributed to these results. These strong fundamentals provide a foundation for more potential growth.

GDP growth components over the time

Regular readers of this space will know that I do NOT believe in trying to TIME the market. That is, guess what the market will do next and adjust investment holdings BEFORE things happen. Research shows this has never been successful.

But it’s natural for investors to feel that they should wait for a market pullback before investing new cash or returning to the market. The chart below measures the "opportunity cost" of being out of the market and waiting for a better price, compared to simply staying invested.

The chart uses date from the last 100 years of the market and shows that selling out of stocks and waiting for a 3% one-day pullback in price before you buy back in has required being out of the market for 69 days on average across history. Over that period, the market rose 2.3%.

Waiting for a 5% pullback requires 291 days and results in a missed opportunity of 13.1%.

 Waiting for pullbacks

If historically high stock prices have you curious about reallocating your investments, maybe you would benefit from a visit with an experienced, highly-trained, CERTIFIED FINANCIAL PLANNER™ professional and Behavioral Financial Advisor to help better understand your options. I love to meet new people. So, follow this LINK to find a time for us to have a get-acquainted visit.

I am a financial planner who is an advocate for my clients ALL THE TIME – a fiduciary financial planner. I provide guidance based on clients’ best interests, not commissions or sales quotas. I think it’s the best way to serve clients and I am thrilled to work this way all the time.

And yes, I’m still taking on a few great families to be part of my financial planning practice.

Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.