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In the world of investing, the phrase "all-time high" often triggers a mix of excitement and apprehension. As prominent indices like the S&P 500 and the S&P/TSX Composite continue to set new record highs, many investors find themselves wondering: Is this the right time to invest, or should I wait for a pullback? While it's natural to feel cautious, historical data and market insights suggest that investing at all-time highs isn't always as risky as you might think. In fact, it can be a smart move for long-term investors.

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The Power of Market Momentum

First, it's important to understand that new all-time highs are not anomalies; they're a natural part of a healthy, growing market. Markets such as the S&P 500 and the S&P/TSX Composite Indices have consistently reached new peaks throughout their history, each of which once being considered “uncharted territory.” Here's why this can matter:

• Clustering effect: All-time highs tend to cluster together. In 2024 alone, the S&P 500 has hit new record highs over 40 times. This is not unusual – there have been 12 other years since 1955 with a similar frequency of new highs.¹ This clustering suggests that when markets are strong, they often continue to show strength.
• Positive returns after peaks: Contrary to what you might expect, investing at market peaks has historically led to positive returns. According to research from J.P. Morgan, since 1970, investing in the S&P 500 on days when it hit an all-time high resulted in an average annual return of 9.4% after 12 months, and 20.2% after two years. These returns actually outpaced those from investing on random days.²
• Bulls easily outrun bears: Since 1926, bull markets have lasted an average of 6.6 years, while bear markets averaged 1.3 years.³

Seeing over the peak – taking a long-term perspective

When considering investing at all-time highs, it's important to maintain a long-term perspective to achieve your long-term goals. Typically, focusing on short-term developments in the market often leads to poor investment decisions. Here are three points to consider to help you stay focused on the long-term:

1. Market resilience: The stock market has shown remarkable resilience over time. Despite numerous crises and corrections, the overall trend has been upward. Over the past 20 years (2004-2024), the S&P 500 has returned 664%, which equates to 10.6% annually, and this period included major events like the 2008 financial crisis and the 2020 pandemic crash.⁴
2. Timing the market rarely works: Waiting for a pullback might seem prudent, but it comes with its own risks. You could miss out on potential gains while waiting for a dip in the market that may not come or that might be less significant than anticipated. Remember: history has shown that it is time IN the market, not TIMING the market, that pays off over the long-term. In fact, studies show that missing just the 10 best market days over 20 years would drop annualized returns from 9.9% to 6.1%.⁵
3. Dollar-cost averaging (DCA): If you're nervous about investing a lump sum with markets at all-time highs, you could consider dollar-cost averaging, or DCA. This strategy involves investing a fixed amount regularly, regardless of market conditions, and can help mitigate the impact of market volatility by buying more when markets are down, and less when they are high.⁶

Reasons to keep calm and climbing on: the current market context

As of late 2024, several factors are contributing to market optimism that may provide skittish investors with reasons to remain on track to their plans:

• Economic resilience: Despite earlier recession fears, the U.S. economy has shown remarkable strength, with GDP growth clocking in at a robust 3% in the last quarter. While Canadian growth has lagged, it has still shown recent signs that the economy has avoided a recession and is poised to grow stronger over 2025 and beyond.
• Earnings growth: Corporate earnings have been solid, with S&P 500 firms estimated to see earnings growth of around 4.6% in the third quarter of 2024, and Canadian companies are also showing similar results.
• Technological Advancements: The excitement around Artificial Intelligence (AI) and other technological innovations is driving growth in key sectors, contributing significantly to market gains.

Keep your eyes on the horizon

While history is on your side and the market outlook is generally positive, it's important to approach investing at all-time highs with a balanced perspective. Here are five pointers that can help:

1. Stay diversified: As the old saying goes, “Don't put all your eggs in one basket.” Spreading your investments across different sectors and asset classes (i.e., cash, bonds, equities) can help manage risk and avoid unnecessary volatility. And consider diversifying geographically – while U.S. and Canadian markets may be at all-time highs, other global markets might also offer value. Diversification can smooth your investment journey, and a smoother journey tends to help investors stay on track to their investment plans.
2. Volatility is a reality of investing: Markets seldomly move in straight lines. Be prepared for short-term fluctuations and resist the urge to panic sell during dips. Over time, volatility has been shown to decline, and staying invested through difficult periods tends to payoff longer term. 
3. Focus on your goals, not peaks: Align your investments with your long-term financial goals. If you're investing for a retirement that's 20-plus years away, short-term highs and lows matter far less.
4. Beware of portfolio drift: To help ensure your portfolio remains within your established risk profile (e.g., conservative, balanced, growth), check-in on it periodically and ensure you haven’t inadvertently “drifted” to a more aggressive (i.e., equity heavy) weighting.
5. Keep cash on hand: Maintain some cash reserves to take advantage of dips in the market. Conversely, it can also help prevent selling to generate cashflow when your investments are down.

Staying on top – advice and guidance can help

Investing at all-time highs doesn’t need to be feared; instead, it is best approached with informed confidence.

As always, it's wise to consult with your advisor to ensure your investment plan aligns with your personal financial goals and risk profile. They can help you navigate the complexities of investing in any market condition, including when indices are hitting new all-time highs.

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Sources: 

• ¹S&P Dow Jones Indices; Ned Davis Research.
• ²J.P. Morgan Asset Management, “Guide to the Markets” report (2024).
• ³Morningstar Direct.
• ⁴S&P Dow Jones Indices.
• ⁵J.P. Morgan Asset Management, "Guide to the Markets" report (2024).
• ⁶Vanguard, "Dollar-cost averaging just means taking risk later" (2012).

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