For some investors, the most frightening three words can be ‘All-Time High’. When these levels are achieved, it can create a perception that a pending collapse is near. This can make it difficult for investors to allocate more capital to stocks as it can feel like one is chasing returns or that one is showing up to a party that is about to end.

That being said, history tells another story. When parsing through the data, we actually see that all-time-highs are not the unique milestones that some investors may believe them to be. All-time-highs also have very little predictive ability for any pending downturns.

When looking at the chart below, we can see that new all-time-highs tend to happen in clusters that can actually last for more than a decade. The current cluster of new highs is seven years old; And even the COVID crisis and recession was unable to break the trend, with 30 new all-time closing highs in 2020. Since 1950, the SP500 has reached an all-time high over 1,190 times, which is an average of just under 17 times per annum. Hence, for those investors who believe that we are starting a new cycle within a bull market, frequent all-time-highs should be expected.

When looking at the next chart, we can see that the performance attributed to investing at all-time highs is similar to the performance achieved investing at all other dates. Below, we see the average returns following all-time-highs (blue bar) are nearly equivalent to the average returns when investing during all other periods (grey bar).

On a “batting average” and “success ratio” perspective, we see that 3 months after investing at an all-time high, 67% of the time, the outcome will be positive. This success rate will rise the longer one stays invested, with an 87% success rate after 3 years (36 months).

 As we have communicated to many clients, it is “time in the market” that is more important than “timing the market”. As all the charts above show, an investor who has a strong grasp of their time horizon can better set up their portfolios for success. Often, working with an advisor to review one’s goals and completing a financial plan can help determine the appropriate time horizon for each account.