All-Time Highs: A Rare Occurrence or Just Another Normal Day in the Stock Market?

Written by Harmony Wagner

As financial advisors, we often speak with clients or prospective clients with cash to invest who are hesitant to put it to work “because the markets are at all-time highs.” The hesitancy to invest cash while the markets are doing well is not entirely unreasonable. After all, an investor always hopes to “buy low and sell high” as the adage goes. In an ideal world, where investors could easily identify market peaks and troughs, that strategy would work wonderfully. In actuality, market movements are nearly impossible to predict. For that reason, it can be a losing proposition to keep investable cash on the sideline just because the market is at or near an all-time high.

Market highs may feel like a rare occurrence, but in fact, they happen all the time. Since 1950, the market has hit all-time highs on 7.5% of all trading days. If we include the time the market spent within 1% of its all-time highs for the same time period, the market was at or near all-time highs 1 out of every 5 trading days. In addition, in a study looking at 1-, 3-, and 5-year returns from 1988 through 2020, investing cash at all-time highs paid higher returns for all 3 time periods when compared to investing on a random day.

Source: JP Morgan

What principle do these statistics illustrate? It is generally better to be invested than holding cash. Given how often the market is at or near all-time highs, should not dramatically impact investors’ decision-making. Although it may feel prudent to wait for a market correction, try to remember that the perfect buying opportunity is an elusive thing. It does not come around that often, and it is difficult to recognize when it does.

I mentioned earlier how often we speak with clients or prospective clients who are holding cash waiting for a correction to hit. It is worth mentioning that quite often, those individuals have been holding that cash for years. Someone who has been holding cash for the past two years has watched the market make new all-time highs 65 separate times within those two years. As famed investor Peter Lynch once said, “Far more money has been lost by investors…trying to anticipate corrections than has been lost in the corrections themselves.” Investing when the market reaches a new high may not be the most comfortable move to make, but history shows that even the best days in the market are as good a time as any to get cash invested.


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