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Market Highs & Lows

The stock market has been on a bull run for over the last 9 years. Over this time period, each of the three major indices (S&P 500, Dow, and Nasdaq) have hit all-time highs several times.  A question I frequently hear from clients is, should I invest now or wait for a pullback? 
Market Highs article header image

Most people naturally fear investment loss and question whether to invest when the market is at, or near, an all-time high. While I understand the reason for the question and the fear of loss of investment, the best way to achieve long-term success is to simply invest and not try to “time” the market. Each day the market can go up or down, regardless where it starts the day. Just because the market is at or near an all-time high does not mean it can’t go higher.  

The best plan for long-term success in the markets is to find the correct asset mix for your goals and objectives, and stick with it through both market highs and lows.

Historically the market goes up over time so you want to stay invested no matter where the market is, and don’t try to get in and out of the market based on short-term swings or news.

Below are two graphs, one showing one, three, and five year forward returns after a market high, and the other showing the same time periods after a decline of more than 10%. Both charts figure in over 1,000 time periods from 1926 through 2017.

Market Highs - image 1

Market Highs - image 2

As you can see by the charts, the one-year forward return has been higher after new market highs by over 2% on average, while the three and five-year returns are just slightly lower. No one can know day to day what is going to happen in the markets, but long-term history shows us that staying invested is the best long-term plan, whether the market is near or at an all-time high or low. 

About the Author

Ted Cohan, CFP®

Ted Cohan, CFP®
Vice President
Senior Portfolio Manager
Walla Walla

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