Should You Invest When the Stock Market Hits an All-Time High?
Imagine you are standing at the base of a majestic mountain range. The air is crisp, your boots are laced, and your eyes are fixed on the highest peak in sight. Suddenly, a breathless hiker rushes past you, waving their arms frantically. “Don’t go up there!” this person gasps. “We’re already as high as it gets! The only way left is down!”
In the world of hiking, you would laugh and explain the concept of plateaus, higher ridges, and Mount Everest. Yet in the world of investing, investors may understandably feel uneasy when markets reach new highs. When the stock market hits an all-time high, a collective shiver runs down Wall Street. Investors freeze, gripping their wallets tightly, convinced that a financial cliff is the only thing waiting on the other side. But history shows that market highs are not, by themselves, a reliable signal to abandon a long-term investment plan.
The Myth of the Lone Peak
The fear of buying at the absolute top is a classic case of vertigo. It feels intuitive: things go up, so they must come down. The old investing rule says “buy low and sell high.” Buying at the absolute highest price ever recorded, therefore, feels like breaking the golden rule of finance. It feels like lacing up your boots for a summit you’re convinced you’ve already missed.
But the stock market is not a static mountain with a single, final peak. It is one that economic growth, productivity, and innovation have historically helped push to new highs. All-time highs are not necessarily final destinations; over long periods, they have often occurred alongside continued economic and earnings growth. When companies innovate, populations grow, and corporate earnings expand, the market may reach levels above prior highs, but not in a straight line and not without periods of volatility or decline.
Higher Highs: The Momentum Monster
Here is the worst-kept secret in finance: once an all-time high is reached, higher highs may follow. Think of it like a climber cresting a ridge with real momentum. That energy doesn’t vanish at the top. Breaking through a previous record can reflect a range of factors, including earnings growth, investor sentiment, economic conditions, interest rates, and market expectations. When the market breaks into uncharted territory, that momentum may continue.
Historically, investing at an all-time high has not automatically resulted in poor long-term outcomes. History shows that portfolios built exclusively on record-high entry points may still have grown over long periods. The market spends a surprising amount of time at or near its highs because markets have historically trended upward over long periods, despite experiencing significant downturns, extended recoveries, and periods of underperformance. Human ingenuity, technology, and compounding returns may support long-term growth, but they do not eliminate investment risk.
Time in the Market vs. Timing the Market
Let’s play a game of “What If.” Imagine a fictional, incredibly unlucky investor named Bob. Bob only invests his hard-earned cash at the absolute peak of the market right before a downturn. He bought just before the 2000 tech crash, right before the 2008 financial crisis, and on the literal eve of the 2020 pandemic closure. He is the ultimate market-timing anti-hero.
If Bob panicked and sold every time, he’d be broke. But if Bob simply held on and let time work, historical data shows he would have had an opportunity to recover and potentially benefit from subsequent market gains. Why? Because historically, the long-term trajectory of a diversified portfolio has been positive over many long-term periods. Over a 10- to 20-year horizon, the exact entry point has often mattered less than factors such as asset allocation, diversification, savings discipline, costs, taxes, risk tolerance, and staying invested through periods of volatility.
Lace Up and Keep Climbing
Waiting for a market drop, or a “correction,” feels smart, but historically it sometimes meant sitting on the sidelines while the market keeps climbing. Investors who tried to avoid the peak may have missed additional gains, although waiting may also reduce exposure before a downturn in some circumstances. The appropriate decision depends on an investor’s financial plan, liquidity needs, risk tolerance, and investment time horizon.
So, the next time you see headlines screaming that the market has reached a terrifying new summit, don’t make a decision based solely on the headline. All-time highs aren’t a reason to abandon a disciplined investment approach. Consider whether your allocation remains aligned with your long-term objectives, and consult with your financial professional before making changes.
This is intended for informational purposes only. You should not assume that any discussion or information contained in this document serves as the receipt of, or as a substitute for, personalized investment advice from Savant. Please consult your investment professional regarding your unique situation.
Daniel B. Crowley
Senior Investment Strategist / Client Advisor
CFP®, CFA®