Camille Van Vyve
20 Jun 2024
Investing at historic highs: should you be worried?
When markets reach historic highs, the idea of investing can seem risky. Paying a price no one has ever paid before? Not me! However, the perceived "risk" isn't actually that high. Here’s why.
Psychological barriers
Seeing markets at record levels can create natural hesitation among investors. The fear of buying at the peak and facing an imminent correction is understandable. This apprehension is often amplified by financial media highlighting the risks of a fall after a peak. However, this fear can prevent you from reaping the potential benefits of continued market growth.
Investing despite the highs
Stock market peaks are common. According to RBC Global Asset Management, since 1950, more than 21% of trading days have been all-time highs for the S&P 500, averaging one day per week! Although these are American data, we can extend these conclusions to the world stock market, since the United States accounts for 60% of the world market. Avoiding investments during these times could mean missing out on significant opportunities. As our research shows, missing the top 20 trading days of the last 20 years would have reduced your returns by fourfold.
Only investing at all-time highs would have little impact on returns
Data shows that even investing solely at historic highs, 1, 3, and 5-year returns remain comparable to average market returns. Over the long term, markets tend to grow due to business innovation and productivity gains, driving them inexorably to new highs.
No correction of more than 10% has been observed over a five-year period after a peak
Moreover, it is rare for the market to decline by more than 10% in the year following a historic high. Since 1950, only 9% of stock market peaks have been followed by a correction of more than 10% within the year. No correction of more than 10% has been observed over a five-year period after a peak.
Smoothing your investments
Instead of trying to anticipate corrections, opt for periodic purchases with fixed amounts. This reduces the impact of market fluctuations and minimizes the risk of "bad timing." This strategy of recurring investments also helps you avoid emotional decisions while benefiting from long-term market growth.
Regular investing with Easyvest
Historic highs should not deter you from investing, as a peak is usually followed by... another peak! With Easyvest, you maintain a long-term and global perspective by investing in global equity ETFs and Eurozone bonds. Thanks to our recurring additions feature, you can also pursue a disciplined investment strategy to optimize your returns.