About a week ago, on Tuesday, the stock market via the S&P 500 index hit another record. According to Eddy Elfenbein, this was the 31st record this year for that index.1
Here are four things not to forget:
1. Record highs do not mean you should stop investing.
Keep in mind stocks have been hitting new highs all year.
Since 1988 investing at all-time highs has had higher investment returns than investing on any day of the week on a 6-month,1-year, 2-year, and 3-year periods.2
2. You should not be surprised if the market still drops this year…or any year.
Declines are normal, not abnormal. Best not forget this. On average, since 1980, the stock market experiences a 14% decline each year.3 A falling stock market should not surprise anyone during any year. Nick Maggiulli notes that, on average, the S&P 500 has experienced the following declines:
A 10% decline every other year
A 30% decline every 4-5 years
A 50%+ decline once a generation4
You must memorize that, even when markets are high, these declines are part of how the long-term investor got here.
3. Stock market gains feel less significant than losses even when they are equal amounts.
In other words, the happiness you feel right now over gaining $10,000, $50,000, or $100,000 of account value in a short amount of time will not compare to the sadness you feel over losing the exact same amounts. The fancy word for this is “loss aversion”. The less fancy word is simply being human. And being human—though totally normal—can make you feel things and do things that you regret later.
Why does one want to get out of the stock market when it’s down? Because it feels terrible! I’m telling you this when the stock market is up because you will need the reminder when volatility comes back, and it’s easy to forget.
4. Stocks remain one of the best ways to grow your wealth over time.
If you received a small inheritance of $20,000 in 1990 and left it in the S&P 500, it would be worth over $645,000.
Stocks have consistently been a great way to combat inflation. While inflation has cut the worth of the uninvested dollar in half, investing dollars in stocks have reaped extraordinary gains, as shown in this chart by Charlie Bilello5:
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Sources:
1. CWS Market Review – June 18, 2024.
2. JP Morgan’s “Guide to the Markets”, page 63 (July 2024). Accessed online: https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/guide-to-the-markets/
3. Ibid., page 16.
4. “Why Stocks are the Greatest Asset Class”, June 18, 2024: Accessed online: Why Stocks Are the Greatest Asset Class
5. Posted by Charlie Bilello on X at 8:05am on June 14, 2024. Accessed online: Charlie Bilello (@charliebilello) on X