Investing at All-Time Highs

With the market at or near an all-time high, a common question is “Should I be putting new money to work, or should I wait for a better entry point?”

To find the answer, I reviewed every trading day for the S&P 500 going back to 1930 (23,806 trading days). I then calculated the forward 1-year return from each day. Here’s what I found:

• On the 1,289 days when the market reached a new all-time high, the average 1-year forward return was 8.5%. 
• On the 22,517 days when the market was not at a new all-time high, the average 1-year forward return was 8.1%.

In other words, history suggests that investing at all-time highs shouldn’t be a source of fear. In fact, it has led to slightly better results.

But, as with most things in investing, the details matter. Looking decade by decade gives us a clearer picture:

Key takeaways:

• There were no all-time highs in the 1930s or 1940s. It really was the Great Depression – the market didn’t surpass its September 16, 1929 peak until September 22, 1954 (This excludes dividends, which make a big difference).
• In every decade except the 1990s, investing at all-time highs underperformed investing at other times. There is risk when buying at peaks.
• Still, even in those decades, investing at highs delivered positive returns in 5 out of 7 cases – the 1970s and 2000s were the notable exceptions. 
• The 1990s alone accounted for 310 all-time highs, nearly a quarter of the total. This was a decade-long bull market where consistent gains made it a great time to invest – high or not.
• By contrast, both the 1970s and 2000s began with high valuations and experienced years of multiple contraction. The 2000s only saw 13 all-time highs, most clustered in early 2000.

The bottom line: It’s perfectly reasonable to invest when the market is at an all-time high. Historically, the market’s next 12 months have delivered positive results. That said, investing always requires discipline and risk management.

At Allied Investment, our approach is the same regardless of market levels: avoid chasing euphoria, focus on valuation, and hold companies with durable quality and earnings power – so you’re prepared whether the market brings more gains or a downturn.

If you’d like to review your account, discuss changes in your financial situation, or schedule a complimentary consultation, our team would be glad to help. You can reach us at (406) 839-2037.

The views expressed in this newsletter represent the opinion of Allied Investment Advisors, a Registered Investment Adviser. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment or services. The information provided herein is obtained from sources believed to be reliable, but no representation or warranty is made as to its accuracy or completeness. Investing in equity securities involves risks, including the potential loss of principal. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations. Past performance is not indicative of future results. Investments are not a deposit of or guaranteed by a bank or any bank affiliate. Please notify Allied Investment Advisors if there have been any changes to your financial situation or investment objectives or if you wish to impose or modify any reasonable restrictions on the management of your accounts through Allied Investment Advisors.