Famed investor Benjamin Graham compared the stock market to an extremely moody shopkeeper who marks prices up one day and slashes them the next. Timing the market is often a failed game. Very few investors can time it right. The best way to match investments is with long term goals. Investing small amounts regularly, over a longer period, is more likely to help you reach your goals.
- On February 19, 2020 the S&P 500 Index hit an all-time high, closing at 3,386.15 as part of a historic bull run that started on March 9, 2009. Over the next 23 trading days the index fell nearly 34%, amidst the uncertainty stemming from the COVID-19 outbreak. Fast forward to August 18th and you’ll see it only took 126 trading days for the S&P 500 Index to make the round trip from peak-to-trough-back-to-peak. For investors, the question many are asking is, "why invest when the market is at an all-time high?"
- When markets hit all-time highs, investors may wonder whether they have already missed the rally and are better off waiting for a pullback rather than getting into the market. They may consider taking profits now, weary of an imminent downturn. Some investors may make tactical decisions that do not align with their initial investment plan based on their beliefs on what may happen next.
- More often than not, one major fear is driving similar reactions to these scenarios: what if I make an investment today and the price goes down tomorrow?
- Good news is, the data makes a compelling case as to why investors should not do any of these things. The below exhibit suggests that new market highs have not been a harbinger of negative returns to come. The S&P 500 Index went on to provide positive average annualized returns over one, three, and five years following new market highs.