Should You Buy Stocks at All Time Highs? A Data-Driven Guide for Investors

February 05, 2024

Stocks have been hitting all-time highs recently.

Investor questions ensue.

Should you still buy stocks at all-time highs? Should you start selling them?

The first thing we should recognize is that the stock market spends a lot of time at or near all-time highs. Bespoke Investment group points out:

“Historically, the S&P has been within 5% of an all-time high on 44% of all trading days versus the 40% of the time it has been 10% or more below an all-time high.”1

Good to know. But the question remains…

A few years ago, Meb Faber, Chief Investment Officer over at Cambria Investment Management, answered the query of whether buying stocks at all-time highs was a good idea this way:

No, it’s not a good idea, which should surprise no one.

The fact that it is a GREAT idea, well, that should surprise everyone.2

This seems overstated.

Remember, whether you should or should not buy stocks at ANY time depends on your personal situation, time horizon, and financial goals. Do not take personal investment advice from people who do not know you or your situation.

With that said. Strikingly, there are plenty of reasons in the past that can warrant buying at all-time highs. Mr. Faber was not basing his research on nothing.

For example, consider the above chart and this 2020 data revealed by JP Morgan that might blow your mind:

SInce 1988 If you invested in the S&P 500 on any random day since the start of 1988 and reinvested all dividends, your investment made money over the course of the next year 83% of the time. On average, your one year total return was +11.7%.

Now, what do those figures look like if we only consider investments on days when the S&P 500 closed at an all-time high? They’re actually better! Your investment made money over the course of the next year 88% of the time, and your average total return was +14.6%.3

In a more recent article, they factor in the recent inflationary and interest rate driven bear market and feature a chart going back to 1970—and the results are similar:

…if you invested in the S&P 500 at an all-time high, your investment would have been higher a year later over 70% of the time with a median return of 12%. The difference of investing at any time (including at both records and non-records) also doesn’t make that much of a difference (with a median return of 10.5%). We don’t think today’s strong footing is reason to delay getting invested.4

Nick Maggiulli, a personal finance author and data head for a wealth management firm, took up the question of investing at all-time highs over at his blog last month. He uses a few different data points than the above firms and leans on longer time horizons and other indexes not limited to the United States, and concludes that stocks usually perform better after all-time highs in shorter time frames, but that “there is less clarity over long time periods”.5

Even with Nick’s distinction, we know that over long periods of time stocks have still done well whether you are at all-time highs or not. Ultimately, that’s the key takeaway here.

Timing the market is oftentimes a fool’s errand. Investing based on investment outlooks or whether your political team is in power or whether you feel like the market is too high is not normally investment wisdom.

Consistency is what matters.

For the long-term investor, who is investing within their objectives and risk tolerance, buying US stock indexes like the DOW & S&P 500—high, low, and everywhere in between—rather than getting caught up in guessing bottoms or waiting out highs has historically been the way to go.

Fearful investors should probably not fear stock market highs more than they should fear never investing in stocks at all.

If you need help assessing how you should invest and are looking for a financial advisor, reach out to us here.

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Sources:

1. Tweeted on X by @bespokeinvest on January 23, 2024. Accessed online: Bespoke (@bespokeinvest) on X

2. November 4, 2010. Is Buying Stocks at an All-Time High a Good Idea? - Meb Faber Research - Stock Market and Investing Blog

3. “Is it Worth Considering Investing at All-Time Highs?”, August 28, 2020. Accessed online: Is-it-worth-considering-investing-at-all-time-highs

4. “New Year Nerves: Why Were Still Optimistic”, January 5, 2024. Accessed online: New year nerves: Why we’re still optimistic | J.P. Morgan Private Bank U.S. & Canada 

5. “Should You Invest in Stocks at All-Time Highs?” January 30, 2024. Accessed online: Should You Invest in Stocks at All-Time Highs?