Feeling Scared to Invest When the Market is at a Record High? Let’s Talk About It.
Hi everyone, John here! Welcome back to the blog. Today, we’re going to tackle a question that makes even seasoned pros a little nervous: Is it a good idea to invest a chunk of money when the stock market is hitting “all-time highs?”
It’s a thought that can really paralyze you. You finally have some money saved up—maybe from a bonus, an inheritance, or just disciplined saving—and you’re ready to put it to work. But then you turn on the news, and all you hear is, “The market just hit another record!”
Immediately, your brain might scream, “Wait! If it’s at the highest it’s ever been, it can only go down from here, right? I should probably wait for a crash.”
It’s a totally normal fear. But what if I told you that thinking might be costing you more than you realize? Let’s break it down together, nice and easy.
What Does an “All-Time High” Really Mean?
First, let’s get on the same page about what an “all-time high” is. It sounds final, like the very peak of Mount Everest. But in the world of investing, it’s more like reaching a new floor in a skyscraper that’s still under construction. It’s the highest point so far, but it doesn’t mean the building is finished.
A healthy, growing economy means companies are generally becoming more valuable over time. Because of this, the stock market is supposed to hit new all-time highs regularly. It’s a sign of progress, not necessarily a sign of a bubble about to pop.
Imagine the stock market’s journey over the last 50 years as a long staircase. There are some steps that go down and some flat landings (we call these “corrections” or “bear markets”), but the overall direction is up. An all-time high is simply the highest step you’ve reached on that staircase… for now.
The Big Question: Invest It All Now or Drip It In?
Okay, so you’ve got a sum of money you want to invest. This is often called a “lump sum.” You generally have two main strategies for how to put that money into the market.
Just then, my assistant Lila, who’s been listening in, chimes in.
“Hold on, John. You just used a couple of terms there. What exactly do you mean by ‘lump sum’ and what’s the other option?”
Great question, Lila! Let’s clarify:
- Lump-Sum Investing: This is exactly what it sounds like. You take your entire chunk of money and invest it all at once. It’s like jumping into a swimming pool from the diving board. You’re all in!
- Dollar-Cost Averaging (DCA): This is the other popular strategy. Here, you break up your money into smaller, equal parts and invest them at regular intervals (say, once a month for a year). This is more like slowly wading into the pool, getting used to the temperature one step at a time.
The common wisdom is that if you’re scared, you should use dollar-cost averaging to ease your way in. But let’s see what the actual history tells us, especially about investing at those scary all-time highs.
What the Data Says About Investing at the “Peak”
The original article we’re looking at analyzed decades of market history to see what happened when people invested a lump sum right at an all-time high. They looked at the S&P 500, which is a great way to measure the overall U.S. stock market.
“John, can you remind me what the S&P 500 is again?” Lila asks.
Of course! Think of the S&P 500 (that’s short for the Standard & Poor’s 500) as a giant basket holding the 500 largest and most important public companies in the United States—think Apple, Amazon, Johnson & Johnson, and so on. Its performance is often used as a stand-in for how the “stock market” as a whole is doing. It’s a fantastic, quick snapshot of the health of the U.S. economy.
So, the analysis compared the results of investing a lump sum on two different kinds of days:
- On a day the S&P 500 hit a brand-new all-time high.
- On any other random day.
The findings were pretty stunning. Over the long run, the returns from investing your money at an all-time high were… actually better than the returns from investing on any other random day. Yes, you read that right!
Here’s a simple breakdown of what the historical data suggests:
- One Year Later: The average return after investing at a new high was often slightly better than investing on a random day.
- Three Years Later: The gap widened. Investing at a new high produced noticeably stronger average returns.
- Five Years Later: The trend continued, with lump-sum investments made at all-time highs performing very well.
The conclusion is clear: historically, all-time highs have been a sign of strength and momentum, not a sign of an impending collapse. Markets that are strong enough to reach new records tend to keep being strong.
The Real Risk: Sitting on the Sidelines
This brings us to the biggest danger of all: the cost of waiting. When you decide to hold your money in cash and wait for the “perfect” time to invest (like after a big market drop), you’re making a huge bet.
What if that drop doesn’t happen for another two years? In that time, the market could climb another 20% or 30%. By the time the “dip” you were waiting for finally arrives, the new “low” point might still be higher than the “all-time high” that scared you off in the first place!
Holding cash means you are earning little to no return, and inflation is quietly eating away at your money’s buying power. The opportunity you miss by not being invested is often a far greater risk than the risk of investing at a high point.
A Few Final Thoughts from John and Lila
John’s View: For me, this is a powerful reminder that our emotions often steer us wrong in investing. The data shows that all-time highs are a normal part of a healthy market, not a warning sign. The most important thing is not trying to time the market, but having a long-term plan and the discipline to stick with it, through highs and lows.
Lila’s View: I’ll be honest, the phrase “all-time high” always felt like a giant red stop sign. But thinking of it as just another step up a very long staircase makes it so much less intimidating. It helps me focus on the long journey ahead instead of worrying about every single step. It’s a huge relief!
So, the next time you hear the market has hit a new record, take a deep breath. Instead of thinking “Oh no, it’s too high,” try thinking, “Great, the economy is growing, and this is a good day to put my long-term plan into action.”
This article is based on the following original source, summarized from the author’s perspective:
Investing a Lump Sum at All-Time Highs