Investing at the market peak

12/3/2024

It’s understandable to feel cautious about investing when the market is at an all-time high. Nobody wants to buy in just before prices dip. But history shows that investing at market highs isn’t as risky as it might seem over the long term.

Take a look at the chart above. It reveals a surprising truth: even investors who bought at past generational market peaks—right before COVID-19, the Great Financial Crisis in 2007, or the Dot-Com bubble—saw better long-term results than they might have expected. While these moments seemed like the worst times to invest, the outcomes over time were far more positive. Here’s why:

All-Time Highs Happen All the Time

Did you know that the S&P 500 reaches a new all-time high in about 30% of months since 1926? That means hitting a high is actually pretty normal. If you avoid investing during these moments, you could miss out on significant opportunities for growth. Waiting for the market to “cool off” often means sitting out during some of the market’s best-performing periods.

Waiting for a Dip Doesn’t Always Pay Off

It might seem smart to hold off and wait for a market dip. But here’s the reality: drops of 10% or more in the year following a market high have only happened 6.5% of the time. And let’s be honest—when markets drop, fear often keeps people from buying, no matter how good the opportunity looks. Predicting dips is incredibly challenging, even for professionals.

It’s All About the Long Term

Some investors worry about markets that struggled for decades after major peaks, like Japan in 1989. But the U.S. economy is built on a much stronger foundation. Today’s leading companies are innovative, profitable, and supported by a dynamic system and resilient consumer base. By focusing on the long term, you’re giving your investments the time they need to benefit from the growth and innovation driving the U.S. economy.

Sources: Ritholtz

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