Investing During All-Time Highs: Why Staying the Course Still Works

As the stock market hits all-time highs, you, like many investors, might wonder: Should I keep investing at these levels? What if a downturn is just around the corner?

While it’s natural to feel cautious when markets are at their peak, history – and sound investment principles – suggest that the best approach is to stick with your long-term plan.

Here’s why staying invested during all-time highs can still be a smart strategy and what you need to know to navigate these market conditions.

The Market’s History of Highs

First, let’s put all-time highs into perspective. The stock market reaches new highs regularly over time as part of its natural progression. According to research from RBC Global Asset Management, since 1950, the broad U.S. equity market has set over 1,250 all-time highs – an average of more than 16 per year.

For those hesitant to invest during all-time highs, history provides reassurance. Market corrections greater than 10% following all-time highs are relatively rare, and the longer your time horizon, the less frequent they become:

• 1 year out: A 10%+ decline occurred only 9% of the time, meaning 91% of the time the S&P 500 avoided such a drop.
• 3 years out: Corrections were even rarer, occurring just 2% of the time.
• 5 years out: The S&P 500 has never finished a 5-year period down more than 10% after hitting an all-time high.

The key takeaway? Long-term investors benefit from time on their side. Staying invested through market highs – and any short-term volatility that follows – can help you stick to your financial plan and take advantage of the market’s upward trajectory over time.

Why Staying the Course Matters

Whether markets are at record highs or facing a downturn, your investment plan should remain focused on your long-term goals.

Here’s why:

1. Timing the market is nearly impossible
   Attempting to sell at the top and buy back at the bottom is extraordinarily difficult – even for professional investors. Missing just a handful of the market’s best days can significantly impact your long-term returns. Staying the course helps you avoid the temptation to time the market, which often leads to costly mistakes.
2. Compounding rewards patience
   Investing consistently, even at high valuations, allows your portfolio to benefit from compound growth. By continuing to contribute to your portfolio, you’re giving your investments more time to grow, regardless of short-term market movements.
3. Your plan is built for all market conditions
   A well-diversified investment plan accounts for the inevitability of market fluctuations. It’s designed to weather both the highs and the lows, so that you can be positioned for growth over the long term.

Key Considerations During All-Time Highs

While sticking with your plan is often the best move, there are some things to keep in mind when markets are at record levels:

1. Revisit your asset allocation
   Market highs can lead to imbalances in your portfolio. For example, if stocks have grown significantly, your equity allocation might now exceed your target percentage. Regular rebalancing ensures your portfolio stays aligned with your risk tolerance and goals.
2. Keep buying (if you’re still contributing)
   For those still working and contributing to an employer-sponsored retirement plan, like a 401(k), continuing a dollar-cost averaging strategy is key. By investing a set amount from each paycheck, you’ll avoid the pitfalls of trying to time the market and benefit from buying shares at various price points over time. Even during market highs, this disciplined approach ensures you’re consistently investing toward your long-term goals.
3. Consider valuations, but don’t overreact
   It’s true that markets at all-time highs can come with higher valuations. However, valuation metrics like the price-to-earnings (P/E) ratio don’t predict short-term market performance. Instead of making rash decisions based on valuations alone, focus on maintaining a disciplined investment approach.
4. Keep your emotions in check
   Market highs can evoke fear of a downturn or FOMO (fear of missing out) if you’re not fully invested. Remember, your long-term goals – not short-term market movements – should drive your decisions.

What If There’s a Downturn?

It’s not unreasonable to expect some level of correction after all-time highs; markets rarely move in a straight line. However, downturns are also a normal part of investing. Staying invested during a downturn often pays off in the long run because markets tend to recover and resume their upward trajectory.

For example, an investor who stayed the course during the 2008 financial crisis would have seen significant gains in the following years. The same principle applies to investing during record highs – over time, staying the course tends to outperform trying to outsmart the market. Learn more about investing during a market downturn here.

The Bottom Line

All-time highs might feel unsettling, but they’re a natural part of a growing market. Rather than trying to predict what’s next, focus on sticking to your investment plan, rebalancing as needed and continuing to invest consistently.

If you’re unsure about your portfolio’s positioning during these market conditions, consider working with a financial adviser. We can help you stay disciplined, make adjustments if necessary and ensure your investments remain aligned with your long-term goals. Schedule a free investment consultation today.

Investing is a marathon, not a sprint – and that’s true whether the market is at an all-time high or a historic low. Staying the course is often the best way to achieve the financial future you’ve been planning for.