The S&P 500 just touched all-time highs. Like clockwork, we’re getting a ton of questions if people have missed out. Here’s one from last week:
I recently sold my condo and netted a large sum of cash. I want to invest the money in the stock market, but it appears the market is at an all time high. Should I wait?
There are four key misunderstandings here. Inspired by the upcoming release of Marvel’s Fantastic Four, we call these the investing Fatal Four.
Misunderstanding #1: “All-time highs are special.”
They aren’t. They happen 20 times a year, on average (data since 1990).
The bad news is that there can be dry spells as those new highs tend to cluster from bull market momentum. Check out the below:
Misunderstanding #2: “Investing at all-time highs kills your returns.”
Historically, returns have actually been better when investing at those levels compared to putting money to work on all other days.
The data reveals a counterintuitive conclusion: if you’re playing the long game, history favors investing on days the market hits new highs. The idea that you’ve “missed out” can be emotional, not rational.
Misunderstanding #3: “Spreading out your investments is a great approach.”
This is often emotional, not rational.
Despite financial literature challenging this approach, many people would rather miss out on gains than experience losses from a turn in the macro cycle. They pursue “regret minimization.”
Misunderstanding #4: “Timing the market matters a lot.”
Not much, actually.
From 1965 through 1995, an analysis suggested that if you invested at the peak of the market in each year, your average annual return could have been 10.6%. If you timed the market perfectly and invested at the low point of each year, your return could have been 11.7%. The difference between great timing and poor timing was only about 1.1%.¹
So what’s the takeaway?
All-time highs feel like you’ve missed out. But those are just feelings indeed. Data—and decades of investor behavior—suggest otherwise.
We’re here to help. Chat with your wealth advisor.
Don’t fall prey to the Fatal Four.
