Is It OK to Invest at All-Time Highs?

I’ve talked to a number of prospective clients recently, and even a few current clients, who have expressed concern about investing money today given that stocks are close to or at all-time highs.  Surely stocks are poised for a drop after their dramatic run up over the last 12 months, shouldn’t we just wait until they go down and buy cheaper?  Let’s consider this question more closely…

In the minds of investors, the stock market and diversified portfolios frequently or most commonly go down after hitting all-time highs.  You probably remember a time when stocks were at highs and then declined, and so you’ve convinced yourself that that trajectory is the most common path the market takes.  But it’s not.  The chart below looks that the return on the S&P 500 over 1-yr, 3-yr, and 5-year periods AFTER it reached an all-time high during any month from 1926 through 2019.  What do you notice?  On average, stocks are up quite a bit AFTER hitting an all-time high; new highs mostly commonly predict…more highs!

  • If you waited a year to invest after the stock market hit an all-time high, you missed out on an average gain of +13.9%–that’s the equivalent of 14 years of standard financial advisor fees (1%/yr)!  
  • If you waited three years, you missed an average of +10.5% per year–that’s 35 years of standard advisory fees, an entire retirement!  
  • And waiting five years cost you an average of 9.9% per year in missed-out-on gains–that’s 60 years of standard financial advisor fees, an entire lifetime!  

Can you really afford to watch your wealth stagnate, on average, as markets most likely continue to trudge forward with average or above-average returns while you earn nothing sitting in cash?  I doubt it.

But are these gains the result of a few periods with outsized gains while most of the remaining periods disappoint?  Hardly…

Believe it or not, the likelihood that you’ll make money in stocks over the next few years AFTER the market hits an all-time high is actually THE SAME as all periods of time.  Consider the table below — the S&P 500 was higher an average of 81%, 84%, and 85% over all 1-yr, 3-yr, and 5-yr periods AFTER hitting an all-time high, with all-time high months representing 30% of the entire period.  Over all 1-yr, 3-yr, and 5-yr periods, including the other 70% of the time, the S&P 500 has only been positive 75%, 84%, and 88% of the time.  The amount of the gains AFTER all-time highs and on average over all periods is also the same.  Contrast the average gains above with the average gains over all periods — +12.3% over 1-year periods, +10.6% over 3-year periods, and +10.1% over all 5-year periods.

Once you have determined what your long-term goals are, and the appropriate asset allocation that should achieve your required rate of return without taking more risk than you are comfortable with, then the best time to invest (to fund that goal/portfolio) is TODAY.  It doesn’t matter if stocks have done well recently or done poorly, future expected stock returns are always positive and you’ll need every day of those returns — the good ones and the bad ones (because we don’t know how to separate the two in advance) — to achieve a successful investment experience.  

Is it OK to invest at all-time highs?  Absolutely!


Past performance is not a guarantee of future results. Index and mutual fund performance includes reinvestment of dividends and other earnings but does not reflect the deduction of investment advisory fees or other expenses except where noted. This content is provided for informational purposes and should not to be construed as an offer, solicitation, recommendation or endorsement of any particular security, products, or services.