Investing at All-Time Highs (like today)
As I write this, the S&P 500 is at another All-Time High (“ATH”), advancing 0.12% to 5,641. According to JP Morgan, this marks the 39th ATH this year, taking the S&P to +19.3% in 2024 alone - a sneaky incredible year!
I often get asked what to do in these situations. Doesn’t market highs mean stocks are expensive and perhaps little juice is left in the fruit?
Counterintuitively, the data suggests otherwise. While this is not investment advice, historically, ATHs have been favorable entry points.
Here’s a chart from JP Morgan illustrating cumulative returns for investors who only invested in the S&P 500 on days when it hit new highs versus any other day (since 1988).
As the chart shows, over the short term (3-6 months), it’s a toss-up. But over longer periods (1-5 years), investing on days with ATHs tends to outperform investing on other days.
A similar study from Dimensional Fund Advisors (DFA) goes back to 1928. While it doesn’t compare performance to non-ATH days, it shows the returns if you invested at the end of a month when a new ATH was reached. Hypothetically, investing at the end of these ATH months would have yielded 13.7% over 1 year, 10.6% over 3 years, and 10.2% over 5 years. Not too shabby!
But why? Market highs often signal a healthy, growing economy and rising corporate profits. It’s human nature to vividly remember downturns like 2008, but the reality is that they’re brief compared to the long-term upward march of economic growth. Markets trend higher over time; trees grow. So while it may feel like you’re “top-ticking” by investing at ATHs, history shows it hasn’t been a bad strategy.
But how often do market corrections follow ATHs? Infrequently. Here’s a chart from RBC Asset Management showing how often the S&P 500 was 10% lower after one, three and five year periods after reaching ATHs since 1950.
Of course it’s impossible to know what happens next. The Market has a way of making a fool out of the most seasoned historians. However, investors will a long-term horizon have tended to fair well by investing in all market conditions, both at highs and lows.
Disclaimer: The information provided in this blog post is for informational purposes only and should not be considered financial, investment, or legal advice. Every individual's financial situation is unique, and you should consult with a licensed financial advisor or professional before making any investment decisions. The opinions expressed in this post are personal views and do not necessarily reflect the views of Bootpack Financial Partners, LLC. All investments carry risk, and past performance is not indicative of future results.