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Stocks are back to all-time highs.
That’s gotten a few people nervous. For instance, I received this message from one of my 500,000 social media followers last week:
But let me give you some facts to put your mind as ease.
The Surprising Reality of All-Time Highs
Novice investors often think that it’s bad to buy at all-time highs.
After all, the prices have never been higher! Surely it’s a poor time to buy stocks.
But that couldn’t be further from the truth. The fact is that stocks being at all-time highs isn’t exactly a rare event.
In fact, it’s happened roughly every 16 days since 1970. This frequency demonstrates that markets generally trend upwards over time, and all-time highs are a part of this upward journey.
But not only is it not bad to buy at all-time highs, it’s actually good.
Don’t Fear the All-Time Highs
Since 1921, the average annual return for the S&P 500 is about 10%.
That includes bear markets (like we had in 2022) and bull markets (like we had in 2023).
As a rule, stocks are in bull markets much more often than bear markets.
Therefore, it makes sense that the average return when buying at all-time highs is actually higher than buying at any other time, returning on average +11%.
Now, that might seem counterintuitive, but let's break it down.
Consider if you had a time machine and could travel back to 2013, when the market was at an all-time high. Would it have been a good investment decision?
Absolutely.
Since then, the market has grown by an impressive +274%.
Or take August 2020, another moment of all-time highs.
If you had invested then, you'd be looking at a +44% gain since.. and that includes the worst bear market in over a decade!
Clearly, investing at all-time highs isn’t as scary as the financial media make it out to be.
So how am I investing in this environment?
My Investment Strategy at All-Time Highs
My strategy remains consistent: a balanced mix of index funds, individual stocks, and a sprinkle of crypto.
Index Funds: These are a staple in my portfolio. Investing in index funds, especially when the market is high, provides broad market exposure and diversification. It's a way to ride the overall market's growth without putting all your eggs in one basket.
Individual Stocks: I also keep a keen eye on individual stocks. Even when markets are high, there are always opportunities. I look for companies with solid fundamentals, growth potential, and competitive advantages. It's about finding value, even in a high market.
Crypto: I maintain a measured exposure to cryptocurrencies. While more volatile, they offer a chance for higher returns and diversification away from traditional stocks.
The Key Is Long-Term Focus
It's important to remember that investing is a long-term game. Short-term fluctuations, even if they're downward after you invest at a high, shouldn't deter your overall strategy. Markets have historically trended upwards, and investing at all-time highs is part of riding this long-term growth wave.
As we've seen, history tells us that being wary of investing at all-time highs might mean missing out on substantial gains.
So, keep investing smartly, and don't shy away from those market peaks.
They could be your ticket to significant financial growth.
Stay safe out there,
Robert